Glossary of Stock Market Terms

American Option/Warrant	Warrants that may be exercised at any time prior to expiry; also known as American-style options/warrants..
Annual Report	A corporation’s official statement put out each year summarizing its financial situation and often including additional information about the company’s performance.
Annuity	A contract sold to an individual by an insurance company which is designed to provide payments to the holder at specified intervals, generally after retirement.
Arbitrage	Attempting to profit by simultaneously purchasing and selling the same or equal securities in a manner which takes advantage of price differences prevailing in different markets.
Ask Price	The price demanded for a financial instrument. Issuers or brokers sell at this price.
Asset	Items of ownership that can be converted into cash; total resources of a person or business, as cash, securities, or real estate
Asset Allocation	The process of dividing investments into different categories, such as stocks, bonds, cash and real estate.
At the Close Order	An order which is to be executed as close to the end of the trading day as possible.
At the Market	An order to buy or sell immediately at the currently available price.
At the Money	When the price of the underlying is equivalent or very close to the strike price. See also >out of the money, see in the money
At the Opening Order	An order to buy or sell at a limited price on the initial transaction of the day.
Authorized Stock	The maximum number of shares a corporation is permitted to issue.
Average	A select sampling of stocks used to reflect the basic trends of the market or a specific portion of the market, for example the Dow Jones Industrial Average. The average is derived by taking the sum of the market value of the selected stocks and dividing that number by the number of issues or by a divisor that allows for stock splits or other changes in capitalization.
Backing Away	When an over-the-counter market marker refused to honor his quoted bid and ask price for at least 100 shares or 10 bonds. This practice is illegal as defined by the NASD Rules of Fair Practice.
Balance Order	The pairing off of buy and sell orders of the same security to determine the net balance of securities to receive or deliver. This information allows the market to be opened appropriately.
Bar Chart	A chart used to plot stock movements using vertical bars to indicate prices.
Basket	An “equity basket” comprising of several single stocks and used as the underlying of basket warrants.
Bearish	Used to voice an opinion in the belief that the stock market or some aspect of it is going to decline in price.
Bear Market	A market where the dominating trend is one of falling prices.
Bid Price	The price offered for a financial instrument. On the warrants market, this is the price at which issuers or brokers offer to buy a warrant and at which investors can sell it
Big Board	Nickname for the New York Stock Exchange.
Black Monday	A name given to October 19, 1987, when the Dow Jones Industrial Average dropped a record 508 points which represented a decline of almost 23%.
Block	A large amount of securities, typically defined as a minimum of 10,000 shares or $200,000.
Block Trade	A large trade typically defined as a minimum of 10,000 shares or $200,000.
Blue Chip Stock	A stock that is from a well known, stable, prestigious company with a long and successful track record of profit growth and dividend sharing.
Bottom Fishing	Investing in stocks whose prices have dropped dramatically based on the belief that the stock has reached bottom and will now rebound.
Breadth Index	The percentage of securities that advanced or declined during a given day's trading.
Break-even point	Indicates the price level above (below) which the investor will make a profit in the case of a call (put). Transaction costs are not taken into account.
Breakout	Used to describe when a security rises above or falls below a particular level, generally it's previous high or low point.
Bullish	Used to voice an opinion in the belief that the stock market or some aspect of it is going to rise in price.
Bull Market	A market where the dominating trend is one of rising prices.
Buying Power	The amount of additional securities that a customer may purchase using the existing equity in his account.
Buy Stop Order	A buy order which is not to be executed until the market price reaches the customer's defined price, known as the stop price. When this occurs, it becomes a market order.
Called Away	Describes a stock option that was sold because the stock was at or above the strike price.
Call Option / Warrant	Warrant granting the right to buy the underlying at the strike price according to a certain exercise ratio prior to or on the agreed expiry date, or to receive payment of a differential amount. A call warrant is often simply referred to as a call. You would buy a call warrant if you expect prices to rise.
Cash Settlement	Instead of delivery of the underlying, a cash settlement may also be agreed in the terms and conditions of the warrant. If this is the case, the difference between the current price of the underlying and the strike price (adjusted for the exercise ratio) is paid out. This is standard practice.
CBOE	Abbreviation for Chicago Board of Options Exchange.
CBOT	Abbreviation for Chicago Board of Trade.
CME	Abbreviation for Chicago Mercantile Exchange.
Central Bank	Used to describe the primary monetary agency in a country. In the United States, it is the Federal Reserve System.
Chicago Board of Options Exchange	An exchange where stock options, index options, equity LEAPS and interest rate options are traded.
Chicago Board of Trade	An exchange where gold, grain, Treasury Bond futures and options are traded.
Chicago Mercantile Exchange	An exchange where financial futures, commodity futures, foreign currency futures and futures options are traded.
Chippies	Brokers which trade on the ECN usually in small share sizes who are prone to panic during reversals of short term trends.
Churning	When a broker processes excessive trades, regardless of the clients best interest, in an attempt to maximize commissions. This practice is illegal as defined by the NASD Rules of Fair Practice.
Circuit Breaker	When a halt to trading is implemented for one hour by a major stock or commodity exchange when an index falls a predetermined amount in a session. This is done to prevent further losses.
Click and Mortar	A financial institution that has both a physical location as well as an Internet presence.
Commodity futures	A contract to buy or sell a commodity at a specific price and on a specific delivery date.
Common Stock	A securities holding that affords the possessor to have ownership in the company which provides benefits such as voting rights and dividend sharing. In the event of liquidation, the rights of common stock holders come after all other holders, such as bond, debt and preferred stock.
Consumer Price Index	An inflationary indicator that measures the change in the cost of goods and service that the average consumer purchases.
Covered Call Writing	Writing a call for shares of stock that you own.
CPI	Abbreviation for Consumer Price Index.
Current leverage	Leverage shows the percentage increase or decrease in the price of the warrant if the share price rises or falls by 1 percent. This, however, assumes a constant premium. See also omega.
Day Order	A transaction order that is valid only for the day on which it was entered.
Day Trading	The practice of buying and selling a security on the same day.
Dead Cat Bounce	A quick, moderate rise in the price of a stock following a major decline.
Deep in the money option	A call option with a strike price that is significantly below the market price or a put option with a strike price that is significantly above the market price.
Deep out of the money option	A call option with a strike price that is significantly above the market price or a put option with a strike price that is significantly below the market price.
Delayed Opening	An intentional delay in the start of trading in a stock until a large imbalance in buy and sell orders is eliminated.
Delta	An indicator that shows absolute changes in the price of the warrant if the price of the underlying changes.
Descending Tops	A chart pattern where each new high price for a security is lower than the previous high.
Dip	A small temporary drop in price during an overall upward trend.
Divergence in Charting	When two charting lines are heading in opposite directions, generally after a cross-over point.
Diversification	Investing in a wide variety of investments so as to reduce overall risk.
Double Bottom	When a security has twice declined to its support level.
Double Top	When a security has twice risen to its resistance level.
Double Witching	The 3rd Friday of months during which both options and futures expire.
Dow Jones Averages	The most widely used Averages to track overall market conditions. There are four Dow Jones Averages: Industrial, Transportation, Utilities, and Composite. The Composite is simply the previous three combined.
Downtick	A transaction where the stock price is lower than the previous transaction.
Due Diligence or DD	The process of researching a stock before buying it. Due Diligence is comprised of things such as checking a company's valuation ratios, business history, basic operations and technical indicators.
Earnings Per Share	Total earnings divided by the number of shares outstanding.
ECNs	Electronic Computer Networks that link buy and sell stock orders.
Effective Gearing Omega	also referred to as elasticity – is regarded as “refined” leverage as it takes into account the delta. The result is often described as elasticity or gearing. The omega indicates the percentage change in the price of the warrant relative to a one percent change in the share price. Omega = leverage x (delta x exercise ratio)
Elliott Wave	A theory of price movement cycles identified by Ralph Elliott. This theory claims that the stock markets follow a pattern of five waves up and three waves down. In the case of a particularly bear market, it would be three waves up and five waves down.
EPS	Abbreviation for Earnings Per Share.
European Option/Warrant	Warrants that may only be exercised on the expiry date; also known as European-style option
Ex-Dividend	A security which will trade without the inclusion of a pending dividend. Therefore, the seller will be receive the dividend, not the buyer. In the newspaper, these securities are usually designated with an X beside their names.
Ex-Dividend Date	The date at which the Ex-Dividend period begins. Usually two days before the record date.
Exercise	Use of the right granted by the option. This typically requires written notice of intent. However, in Hong Kong, all European style cash settled warrants are subject to automatic exercise if they are in-the-money at maturity. Warrantholders will not be required to deliver any exercise notice.
Exercise/Expiration Date	The date when the sale or purchase of an option or warrant occurs as agreed upon in the contract. The date on which an option or warrant becomes worthless if not exercised.
Exercise Ratio	Indicates the number of X warrants related to one share and specifies the amount of the underlying that the owner of a single warrant is entitled to buy or sell.
Fair Market Value	A price that both the seller and buyer agree represents a valid price based on current market conditions.
Fibonacci Numbers	A sequence of numbers where the next number in the sequence is equal to the sum of the previous two numbers. For example, 5, 10, 15, 25, 40, 65.
Fill or Kill Order	An order which must be executed in its entirety or canceled completely.
Flipping	The act of buying initial public offerings at the offering price and then quickly reselling them to retail investors once trading has begun, usually for a large profit.
Float	The number of shares of a common stock that are outstanding and therefore available for trading by the public.
FOK Order	Abbreviation for Fill or Kill Order.
401(k) Plan	A defined contribution plan offered by a corporation to its employees, which allows employees to set aside tax-deferred income for retirement purposes.
403(b) Plan	A defined contribution plan offered by a non-profit organization to its employees, which allows employees to set aside tax-deferred income for retirement purposes.
Free Riding	The rapid buying and selling of a security without any intention of paying for the transaction. This practice is illegal.
Fundamental Analysis	A method of determining a securities value based on the analysis of several factors, such as a company's earnings, sales, assets and growth potential.
Futures	A contract which requires the delivery of a commodity at a specific price on a particular date in the future.
Gap	When the range of a stock price on two successive days does not overlap.
Gap and Trap	The price of a stock gaps, buyers purchase the stock. Market makers bring the stock price down, thus trapping the buyers who bought at the higher gap price.
Going Public	When a private company first offers shares to the public.
Good till Canceled Order	An order which remains valid until executed or canceled by the customer.
GTC Order	Abbreviation for Good till Canceled Order.
Hammering the Market	Excessive sale of stocks which drives the market down.
Head and Shoulders	A chart pattern in which there are three successive rallies which form the outline of a person's upper torso. This pattern is used to alert investors that a stock price could be headed for a fall.
Hedge	Taking an investment position in which some investments are designed to offset the risk of others.
House Call	A call from the brokerage to the customer requesting that the customer deposit additional funds into their account in order to return the balance to its required level.
Index	A select sampling of stocks used to reflect the basic trends of the market. Indexes are derived from a broader number of stocks than Averages.
Index Fund	A mutual fund that tries to mirror the performance of a specific index.
Index Options	An option whose security is an index.
Indicator	Statistics which provide an indication of the trends of the financial world or the economy in general.
Initial Public Offering	The first issue and sale of stock by a company to the public.
Insider	A person who is privy to corporate information that is not available to the general public.
Institution	A large organization which is in the business of investing in securities.
Institutional Investors	An entity with a considerable amount of money to invest.
In the Money Option	A call option where the strike price is less than the market price or a put option where the strike price is greater than the market price.
Intraday	Within a single day.
Intrinsic Value	The amount of money that an option is worth if it were exercised.
Investment Advisor	A person or an organization which has the right under the Investment Advisors Act to manage the investments of a third party.
Investment Advisors Act	A law which states that all investment advisors must register with the SEC.
Investment Banker	An individual or institution which provides services, such as underwriting and counseling, but does not accept deposits or make loans.
IPO	Abbreviation for Initial Public Offering.
Island ECN	Currently, the second largest ECN. It is used primarily by day traders.
ISLD	Abbreviation for Island ECN.
LEAPS	Abbreviation for Long-term Equity Anticipation Securities.
Level I	An informational screen which shows current bid and ask price.
Level II	An informational screen which shows, in addition to the current bid and ask price, all market makers and ECNs at different price levels on the bid and ask.
Leveraged Buyout	Taking over a controlling interest in a company, using primarily borrowed money.
Limit Order	An order in which the customer sets a maximum price he is willing to pay as the buyer or a minimum price he is willing to accept as the seller.
Limit Price	The price specified in a limit order.
Limited Partnership	A business partnership comprised of at least one general partner and at least one limited partner. The general partner operates the day to day business and assume legal debts and obligations. The limited partner is only financially liable up to the point of his investment into the business.
Liquidation	The closing out of a securities position.
Liquidity	The ability of an asset to be easily converted into cash. Also, the ability of the market to absorb a reasonable amount of trading at reasonable price changes.
Listed Stock	A stock that is traded on a major exchange.
Locked Market	A highly competitive market in which the bids and prices are the same.
Lockup Period	A period of time when a company first goes public during which major shareholders are prevented from selling their shares.
Long-term Equity Anticipation Securities	Long-term stock or index options, with expiration dates up to three years away.
Long-term Gain	A capital gain on an investment which was held for a minimum of six months. The profit is subject to long-term capital gains tax, which is usually a lower tax rate than that on a short-term gain.
Maintenance Call	A call from the brokerage to the customer requesting that the customer deposit additional funds into their account in order to return the balance to its required level.
Manipulation	Attempting to affect or control the price of a security through aggressive trading. This practice is illegal.
Margin	The amount of money that a customer must deposit with a broker to secure a loan from that broker. In the case of futures, the amount of money that must be deposited to protect the buyer and seller from default.
Margin Call	A call from the brokerage to the customer requesting that the customer deposit additional funds into their account in order to return the balance to its required level.
Market Makers	A brokerage or bank that maintains a bid and ask price in a given common stock by always being available to buy or sell at publicly quoted prices.
Market Order	An order to buy or sell immediately at the currently available price.
Market if Touched Order	An order which is to be executed if the specified price is reached.
Market on Close Order	An order to buy or sell which is to be executed during the closing period of the market at the best price available.
Market on the Open Order	An order to buy or sell which is to be executed during the opening period of the market at the best price available.
Momentum Trading	Short to moderate length investments that are made to capitalize on the sudden rise or drop in a stock price that follows certain technical indicators.
Naked Option	The writing of an option without ownership of the underlying asset.
NASD	Abbreviation for National Association of Securities Dealers.
NASDAQ	Abbreviation for National Association of Securities Dealers Automated Quotations.
National Association of Securities Dealers	A self regulated securities industry organization responsible for the operation and regulation of the NASDAQ stock market and over the counter markets.
National Association of Securities Dealers Automated Quotations	A computerized system by which NASD members can communicate bids and offers on over the counter stocks and some listed stocks.
Net Charge	The last column in a stock or bond table listing the difference in price between the close on that trading day and the previous day.
New York Stock Exchange	The largest and oldest securities exchange in the United States.
No Load	A purchase with no commissions charged.
NYSE	Abbreviation for New York Stock Exchange.
OCC	Abbreviation for Options Clearing Corporation.
Odd Lot	An amount of stock less than the normal trading unit.
Odd Lot Theory	The theory that odd lot investor become heavy buyers when the market is about to peak and heavy sellers when the market is declining just prior to a rally.
Offering Price	The price at which shares will be sold to IPO investors.
Open Interest	The number of contracts outstanding at the end of the trading day.
Open Order	An order which remains valid until executed or canceled by the customer.
Opening Price	The price at which an IPO starts trading on the open market.
Option	The right to either buy or sell a stock, commodity, currency, or index at a specified price during a specified time period.
Option Chains	A list of all the available options for a particular security. Option chains show items such as strike prices, expiration dates and whether the option is a call or a put.
Option Cycle	A series of months during which the options of a particular security expire. All options are placed in one of 3 cycles: the January cycle (January, April, July, October), the February cycle (February, May, August, November), or the March cycle (March, June, September, December). This cycle does not apply to LEAPS.
Options Clearing Corporation	An organization which processes and guarantees the transaction of options for the various options exchanges.
Options on Futures	Gives the buyer the right to buy or sell a specific futures contract at a specific price during a specific time period.
OTC	Abbreviation for Over the Counter.
Out of the Money Option	A call option where the strike price is greater than the market price or a put option where the strike price is less than the market price.
Over the Counter	A security that is not listed or trader on a major exchange, usually due to an inability to meet listing requirements.
P/E Ratio	Abbreviation for Price/Earnings Ratio.
Painting the Tape	A person or group making numerous trades without any real change in ownership occurring. This is done to create the impression that there is heavy activity related to the stock, thus encouraging others to trade in the stock.
Paper Loss/Profit	A profit or loss which has occurred but will not become actual until the security position is closed out.
Paper Trade	Trading stocks for pretend with no real money, to practice or test theories.
Penny Stocks	Low priced, high risk stocks, usually with a price of less than a dollar per share.
Pink Sheets	A daily listing of bid and ask prices for over the counter stocks published by the National Quotation Bureau.
Plus Tick	A transaction where the stock price is higher than the previous transaction.
Plus Tick Rule	SEC rule stating that short sales may only be made on an uptick/plus tick or zero-plus tick.
Point and Figure Chart	A chart which shows price movements of a security, without measuring the passage of time.
Poison Pill	Any action taken by a company designed to avoid a hostile takeover. For example, issuing preferred stock that can be redeemed at a premium if a takeover does occur.
Portfolio	All of the different investments owned by the same individual or organization.
Preferred Stock	A stock holding which provides a specific dividend that is paid before any dividends are paid to common stock holders. In the event of liquidation, their rights come before common stock holders, but after other holders, such as bond and debt.
Price/Earnings Ratio	A ration derived by dividing the market price of a company by earnings per share. This is thought to gage the value of the stock relative to current market conditions.
Principals	The major investors in a corporation. They, generally, have equity interest, voting privileges, access to management records as well as receiving dividends.
Profit Taking	Action by short-term securities traders to cash in on gains created by a sharp market rise. This results in a temporary drop in market prices.
Program Trading	A computerized trading system that allows for large volume securities trading.
Prospectus	A document required prior to an offering of securities. It must explain the offer, including the terms, issuer, historical financial statements, planned use of the money or objective as well as any other information that may be useful to an investor in determining whether to invest. A prospectus is required as a result of the Securities Act of 1933.
Protective Puts	The purchase of a put option at the same time as purchasing the stock defined in the put or while already owning the stock defined in the put.
Proxy	A person who is authorized to represent another person. For example, a person who is authorized to vote in behalf of another stockholder at a stockholder's meeting.
Proxy Contest	Technique used to acquire a company in a hostile takeover attempt. The group, that wishes to attempt the hostile takeover, solicits the proxy rights of other stockholders. This is done to procure a voting block large enough to facilitate a company takeover.
Put Option	A put option establishes the right to sell a specified quantity of the underlying security at a specified price any time during the duration of the option. You would buy a put option if you expect prices to drop.
Rally	A substantial rise in the price level of the overall market, following a decline.
Red Herring	A slang term for a preliminary prospectus. So called, because of the warning printed in red on the prospectus stating that it is still being reviewed by the SEC.
Resistance	Inability of a stock to rise above a certain price. This is generally due to an abundance of stock being available at that price.
Reversal	When the overall market changes directions after a trend in the other direction has occurred.
Road Show	A series of meetings with potential investors and brokers, conducted by a company which is preparing for its IPO. These meetings usually take place in several locations throughout major cities.
Rolling Option	Buying options on a stock which shows a consistent pattern of traveling up and down between two levels.
Rolling Out	Buying back an existing option and then rewriting it with an expiration date that is further in to the future and/or with a different strike price.
Round Lot