stock market vocabulary

Document Sample
stock market vocabulary Powered By Docstoc
					Living Math                                                  Name: _____________
October 22, 2007

                         St ock M arket Vocabulary

auction market – Auction market trading, sometimes known as open outcry, is the way
      the major exchanges, such as the New York Stock Exchange (NYSE), have
      traditionally handled buying and selling.

beta number - Beta is a measure of an investment’s relative volatility. The higher the
      beta, the more sharply the value of the investment can be expected to change in
      relation to a market index.

blue-chip - A nationally recognized, well-established and financially sound company. The
      name "blue chip" came about because in the game of poker the blue chips have the
      highest value.

common stock – Common stock shares have voting rights; they may be more volatile
      than preferred stock. They can earn dividends, but preferred stockholders are paid

compound interest – With compound interest, investors earn interest on their
      principal plus any accrued (accumulated) interest.

conservative/moderate/speculative risk – Each investment is associated with a
      certain level of risk. Conservative risks provide the lowest level of risk; these
      investments are generally the most secure, although they may provide the lowest
      returns. Moderate risks include investing in companies with high growth rates
      which may or may not be earning large profits at the present time. Speculative
      risks, which offer the greatest potential rewards (and losses), include start-up
      companies or companies researching new innovative products.

distribution date – the date that a company releases (mails out) dividends to

diversification - Diversification is an investment strategy in which you spread your
      investment dollars among different sectors, industries, and securities within a
      number of asset classes (such as stocks, bonds, real estate, cash).

dividend – Dividends are portions of a company’s profits which are paid to shareholders.
      They may be stock or cash.
earnings - Earnings are profits, or net income, after the company has paid
income taxes and bond interest.

electronic communications network - An ECN is an alternative trading system that
      collects, displays, and executes orders electronically without a middleman.

exchange - Traditionally, an exchange has been a physical location for trading securities.
      Trading is handled, at least in part, by an open outcry or auction system, such as in
      the NYSE. However, traditional exchanges handle an increasing number of trades
      electronically. NASDAQ and other totally electronic securities markets, without
      trading floors, have exchange status.

ex-dividend – The period in between the record date (when the company announces a
      dividend) and the distribution date (when the company issues the dividend).
      Shareholders who purchase shares during the ex-dividend period will not be entitled
      to a dividend.

index - An index reports changes up or down, usually expressed as points and as a
      percentage, in a specific financial market, in a number of related markets, or in an
      economy as a whole. Examples are the Dow Jones Industrial Average, the S&P 500
      and the Russell 2000.

industry - A category used to describe a company's primary business activity, usually
      determined by the largest source of a company's revenues. An industry can be
      classified very broadly (i.e. manufacturing) or specifically (i.e. fast-food

interest - Interest is what you pay to borrow money using a loan, credit card, or line of
      credit. It is calculated at either a fixed or variable rate that’s expressed as a
      percentage of the amount you borrow, aligned with a specific time period. For
      example, you may pay 1.2% interest monthly on the unpaid balance of your credit
      card. Interest also refers to the income, figured as a percentage of principal, that
      you’re paid for purchasing a bond, keeping money in a bank account, or making
      other interest-paying investments.

Interest rate - Interest rate is the percentage of the balance in a deposit account (or
      the face value of a bond) that you receive as income on your investment. If you
      multiply the interest rate by the face value or balance, you find the annual amount
      you receive.
                                       Page 2 of 5
investor - someone who commits money in order to gain a return on that money.

IPO – Initial Public Offering. When a company reaches a certain stage in its growth, it
      may decide to issue stock in order to raise capital, or go public, with an initial public
      offering (IPO).

portfolio - If you own more than one security, you have an investment portfolio.

preferred stock – Preferred stockholders do not have voting rights, but they are paid
      their dividends (very often on a fixed schedule) before common stock shareholders.
      The price of preferred stock is usually more stable than common stock.

price/earnings ratio - The price-to-earnings ratio (P/E) is the relationship between a
      company’s earnings and its share price, and is calculated by dividing the current
      price per share by the earnings per share. A stock’s P/E gives you a sense of what
      you are paying for a stock in relation to its earning power.

principal – Principal refers to the amount of money you invest (or borrow, as in a

private corporation – A company is private if it has not issued stock to the public. In
      a privately held company, the stock is held by company founders, management,
      employees, and sometimes venture capitalists.

profit - Profit, which is also called net income or earnings, is the money a business has
      left after it pays its operating expenses, taxes, and other current bills.

public corporation - The stock of a public company is owned and traded by individual
      and institutional investors.

public float – The public float is the portion of shares of a company that is not held by
      the company management.

record date – The record date is the date a company announces a dividend. You must
      own stock on the record date in order to receive the dividend.

                                         Page 3 of 5
return - Your return is the profit or loss you have on your investments, including income
      and change in value.

risk - Risk is the possibility you’ll lose money if an investment you make provides a
      disappointing return. All investments carry a certain level of risk, since investment
      return is not guaranteed.

risk tolerance - Risk tolerance is the extent to which you as an investor are
      comfortable with the risk of losing money on an investment (in other words, how
      much money you are willing to lose). If you’re unwilling to take the chance that an
      investment that might drop in price, you have little or no risk tolerance.

rule of 72 – The Rule of 72 says that if you divide 72 by your annual interest rate, the
      result will be the approximate number of years it will take your money to double if
      the interest is compounded.

sector - A sector is a segment of the economy that shares distinctive characteristics,
      such as telecommunications or energy.

security - The term security refers to a stock, bond, or other investment product.

simple interest – with simple interest, investors earn interest only on their initial
      investment, not on any accrued interest.

stock split - When a company wants to make its shares more attractive and affordable
      to a greater number of investors, it may authorize a stock split to create more
      shares selling at a lower price. A 2-for-1 stock split, for example, d oubles the
      number of outstanding shares and h alves the price. If you own 100 shares of a
      stock selling at $50 a share, for a total value of $5,000, and the company’s
      directors authorize a 2-for-1 split, you would own 200 shares priced at $25, with
      the same total value of $5,000.

tombstone ad - A written advertisement placed by investment bankers in a public
      offering of a security. It gives basic details about the issue and, in order of
      importance, the underwriting groups involved in the deal. This advertisement gets
      its name from its black border and heavy black print, and is quite frequently
      published in the Wall Street Journal.

                                        Page 4 of 5
volatility - The term volatility indicates how much and how quickly the value of an
      investment, market, or market sector changes.

market capitalization (or ‘cap’) – refers to the market value of a company,
      calculated by multiplying the number of existing shares of stock times the current
      stock price.
      L arge cap companies – public companies with market cap value over $10
      M id cap companies - public companies with market cap value between $2 and
      $10 billion
      S mall cap companies – public companies with market cap value between
      $300 million and $2 billion

                                       Page 5 of 5

Shared By: