Stock Market Investing 10 Minute Guide

Glossary

52-week high-low

Entries in the daily stock tables of the highest and lowest point at which the stock has traded during the past year.

aggressive growth stocks

Stocks that focus on their potential for capital gains and accept higher principal risk to achieve this growth.

American Stock Exchange

Originally founded as the New York Curb Exchange in 1842, the American Stock Exchange is rivaled in prestige only by the New York Stock Exchange.

AMEX Market Value Index

An index composed of 800 stocks that trade on the American Stock Exchange. This type of index is based on the belief that the health of the American economy is best represented by the performance of the proprietary market.

asset

Anything owned that has value such as cash, real estate, intellectual property, or name recognition.

bankruptcy

A court declaration of the financial insolvency of a person or company.

blue chip stock

A designation for share of a company that is extremely well established and financially secure.

book value

A measurement of the total value of a company determined by adding up the values of all tangible assets. Or, the value of each share of common stock should the company declare bankruptcy, determined by dividing the value of the assets of a company by the number of its outstanding shares.

broker

Anyone who has received qualification to trade stock for clients by passing the Securities Exchange Commission's Series 7 Exam.

brokerage accounts

Monetary deposits maintained with a broker to trade stock.

buy and hold

An investment strategy characterized by purchasing stock to retain for an extended period of time. Additionally, buy and hold usually implies that dividends will be reinvested in subsequent purchases of the stock.

call

A contract that grants the bearer the option of purchasing stock for a predetermined price in the future regardless of the stock's actual market value at that time.

capital appreciation

The growth in the value of any type of investment asset such as stock or real estate.

capital gains

The total amount of profits from the sale of, or potential sale of, an investment asset.

cash account

A brokerage account stipulating that the investor can make no stock purchase larger than the amount of money within the account.

closing price

The amount at which the stock settled at the end of the trading day.

commodity futures

Contracts to buy or sell a specified amount of a product such as sugar, cotton, or precious metals for a predetermined price and date in the future. These contracts have value and are traded like stock.

common stock

A share of common stock is characterized by its owners receiving fluctuating dividends and voting one proxy per share.

compound interest

Interest paid as a percentage of the initial amount loaned and previous gains made with prior interest payments.

conservative growth stocks

Stocks that focus on their capital gains potential, but not at the expense of excessive capital risk.

constant dollar plan

An investment strategy in which the investor adds or subtracts cash to keep the number of original stock purchased constant.

corporate bond

An interest-paying certificate of indebtedness issued by a corporation to investors for the purposes of raising capital or cash.

credit limit

A predetermined maximum amount a person or company is entitled to borrow from a particular lender.

credit rating

A comprehensive data file of an individual's or a firm's past performance in the repayment of loans, or the ranking bestowed on that individual or firm by the credit rating company based on the same information. Also, evaluations by disinterested parties and services regarding the financial health of a company or individual.

current ratio

A projection of the company's ability to meet its financial obligations and remain solvent.

current yield

A formula that depicts the dividend payment of a stock as a percentage of the stock's market price.

custodial account

A brokerage account for a minor set up under the rules of the Uniform (Gifts) Transfers to Minors Act whereby an adult oversees the account's management on behalf of the minor until he or she becomes a legal adult.

daily high-low

Entries in the daily financial tables that list the highest and lowest point at which the stock traded over the course of the day.

debt

Anything owed.

debt ratio

A formula that compares a company's total debt to its assets and cash flows.

derivative

An investment that is based on a stock's performance.

discount broker

A broker who provides financial services individually rather than full service.

dividends

The portion of profits a company pays to its stockholders , usually in quarterly annual payments.

dividends per share

The amount of the last dividend paid.

dollar cost averaging

An investment strategy characterized by systematically investing a predetermined amount on a regular basis.

Dow Jones

A series of four separate indices that currently trades on the New York Stock Exchange and is considered by many to best represent the activity of the market and the American economy.

e-broker

A broker who provides financial self-service options online.

earnings per share

A company's net earnings divided by the number of its outstanding common shares.

evaluation

A projection of the future performance of the stock through the use of statistics and formulas.

financial media

Various methods by which an investor can accumulate financial information such as television, radio, newspapers, magazines, and the Internet.

full service broker

A broker who provides complete management over clients' accounts.

growth stock

Shares of a small company that is believed by its shareholders to have excellent potential to become larger.

income stocks

Shares of a company that focus on providing higher and more regular dividend payments over capital gains.

indices

A number of stocks whose prices are combined and averaged to demonstrate value changes in a particular market.

inflation

An economic condition in which prices rise resulting in a decrease in purchasing power.

inflation risk

The danger that your investment will not maintain its initial purchasing power because it is not growing as fast as the national inflation rate.

interest

An attached charge for the loan of money. The borrower pays, and the loaner receives, an amount above and beyond the initial amount loaned.

international markets

Stock exchanges in other countries .

liability

Anything owed, including bills, taxes, loans, or other financial obligations.

limit orders

Instructions to a broker to purchase stock at a price lower than the current market price or sell it at a price higher.

long- term capital gains

The total amount of profits from the sale of, or potential sale of, an investment asset that has been held more than one year.

margin account

A brokerage account that permits the purchase of stock with credit.

market order

Instructions to trade stock immediately at the best possible price. A market order is also known as an open order.

market price

The amount that can be received upon the sale of property.

market risk

The danger that a stock's performance will be influenced by conditions within the markets in which they trade.

miscellaneous information

Data in the daily stock tables such as currency exchange rates, IPO offerings, and analyst predictions .

money market

A mutual fund that invests in bank certificates of deposit, treasury bills, and loans to corporations that are considered particularly secure.

mutual fund

A variety of securities that are purchased with money pooled by a group of investors.

NASDAQ (National Association of Securities Dealers Automated Quotations system)

A computerized network over which brokers trade over-the-counter securities.

NASDAQ National Market System Composite Index

An index composed of over-the-counter stock traded on the NASDAQ system.

net change

The difference between a stock's current and previous day's closing price.

net worth

The total value of a company or an individual calculated by subtracting all liabilities from all assets.

New York Stock Exchange

Established in 1817, the NYSE is the largest and most prestigious stock exchange in the world.

New York Stock Exchange Index

An index composed of all 1,600 stocks trading at the New York Stock Exchange.

odd lots

Shares of stock that are purchased outside of a predetermined standard.

orders

Instructions to a broker on how stock should be traded.

options

A contract between two parties to trade stock at a predetermined price.

over-the-counter

Stocks that are traded over the largest stock trading network in this country, a computerized network known as NMS.

P/E ratio

A comparison of the current market value of the stock to its dividend payments.

penny stock

Highly speculative shares in a company with little or no real value other than uncertain growth potential.

political/governmental risk

The danger that domestic and international governmental actions will have ramifications affecting a stock's performance.

portfolio reevaluation

Periodic investment recalculations using newer and increased information to ensure the original decision is still correct or applicable .

preferred stock

A share of stock that is issued after common stock and whose dividends are a predetermined amount and paid prior to common stock's dividends.

puts

A contract that grants the option of selling stock at a predetermined price in the future regardless of the stock's actual market value at that time.

principal

The initial amount of money used to purchase an investment.

qualifiers

Symbols and initials on the stock tables that denote circumstances associated with the corresponding stock information.

recommendation

A request for, or the receipt of, information or insight from a person who may have a better insight into the stock's future performance.

regional exchange

One of 14 exchanges around the United States that offer the larger stocks of the NYSE or AMEX and proprietary-listed stock for trade.

research

Checking sources for information on a stock and/or its performance.

round lots

A predetermined number of shares of stock that is considered standard for trade.

Russell Indices

Three indices that rate the activities of stocks, based on their market capitalization. The smallest, the Russell 1000, measures the activities of the 1,000 largest capitalized companies, while the Russell 2000 measures those of the less capitalized companies.

secondary stock

Shares of a company with substantial backing that is not considered blue chip.

short-term capital gains

The total amount of profits from the sale of, or potential sale of, an investment asset that has been held for one year or less.

speculate

To take greater risks when investing in order to make larger gains.

speculative stocks

Stocks that have little or no real value other than unsupported potential (for example, long shots).

Standard and Poor's 500

An index composed of the 500 largest stocks trading on the NYSE and the NASDAQ.

stock

A representation of partial ownership of a company. A stock can be either a physical document or a computerized account.

stock market

Centralized physical locations or computer networks over which stock is traded.

stock name

An entry in the daily stock table, usually in the form of abbreviations and acronyms.

stock symbol

An entry in the daily stock tables of the symbols used to identify a stock, composed of one- to four-letter combinations.

stop orders

Instructions to a broker to sell stock at a price lower than the current market value or buy it at a price higher than the current market value.

subscription right

An option granted to current shareholders to buy future-issued stock at a discount price.

tax-free bond

A bond issued by state or local government to investors for raising capital or cash of which interest is exempt from municipal, state, and/or federal taxes.

ticker tape

Originally an actual machine; the term is currently used to describe an electronic ribbon which carries information on currently occurring stock trades.

time notations

Instructions to a broker regarding how long an order should remain in effect.

GTW  

G ood T hrough the W eek.

GTM  

G ood T hrough the M onth.

GTC  

G ood un T il C anceled.

Treasury securities

U.S. government obligations that are available for purchase to the public through Federal Reserve banks. Investments of this type include Treasury bills (T-bills), bonds , certificates, and notes.

utility stock

Shares in a company that provides public service such as gas or electricity.

Vol 100s

An entry in the daily stock tables of the number of total shares traded that day. The figure in this column must be multiplied by 100 when under 10,000 for the correct number of traded shares.

warrant

A contract issued by a company to purchase its stock at a predetermined price regardless of the market value of the stock at that time.

Wilshire 5000 Index

An index composed of all quoted stocks on the NYSE, AMEX, and NASDAQ markets, over 5,000 in all. It is designed to measure activity in all markets to best represent the overall health of the American economy and is the largest of all popular indices.

Yield Percent

The ratio of dividends paid by a stock to its closing price which is used to depict the amount of income generated by the stock relevant to its initial investment requirement.