An abbreviation used in stock listings of newspapers to indicate a stock's annual rate of return plus dividend.
Bonds with a denomination of less than a $1,000 par value. Baby bonds are a source of funds to corporations that lack access to large institutional markets and bring the bond market within reach of small investors.
Those departments of a broker-dealer that are not directly involved in sales or trading. Some back office functions include cashiering, accounting, and the record keeping of clients' cash or margin accounts.
A fee that an investor pays when redeeming (withdrawing) funds from an investment--also called "deferred sales charge." The fee is usually dependent on how long the investment is held--the longer the time period, the smaller the fee. Mutual funds and annuities are the most common investments with back-end loads.
The failure of a market maker to fulfill its obligation to buy or sell the minimum quantity of a particular security. Backing away is considered an unethical practice under the National Association of Securities Dealers' Rules of Fair Practice.
Lingo used to indicate a sudden reversal of a market trend.
Open balance or loan receivable that is considered un-collectible and is written off by a firm. (Reserves are usually maintained for un-collectible accounts.) The relationship of recoveries and write-offs to accounts receivable can indicate a firm's credit and charge-off policies.
Base Market Value
Group of securities average market price at a specified time. It is used in plotting dollar or percentage changes for purposes of market indexing.
A period of time that is used as a measurement yardstick for economic data. A base period may be a month, year or average of years. For example, the US inflation rate is determined by measuring the current Consumer Price Index against those of its base year, 1967.
Document that broker-dealers must file and keep current with the SEC. It provides details about the firm's principals and officers, net capital compliance, and financial statements.
Investor who believes an individual security, an industry segment, or the overall market will decline.
A security, usually a bond, which does not have the owner's name registered on the books of the issuer or on the certificate. Interest and principal, when due, are payable to the person in possession of the bond. The holder sends in or presents a coupon for payment. Most securities issued today are in registered form.
Takeover bid so attractive that the target company's directors, who might be adverse to it for other reasons, must approve it or risk shareholder protest.
A prolonged decline in stock prices that may occur for months or years. A bear market in bonds is usually caused by rising interest rates while a bear market in stocks is usually caused by investors who expect economic activity to decline.
Bear Market Strategies
Some common strategies are: Buying Contramarket Stock, Buying Put Options, Writing Call Options, Short Selling.
An option strategy wherein the investor profits when the underlying security's price declines.
Signal indicating that trading on major exchanges has either opened or closed.
A security that is perceived as an indicator of a market's direction. IBM, for example, is considered a bellwether stock. The 20-year US Treasury bond is considered a bellwether bond because it represents the direction in which all other bonds are likely to move.
The person(s) entitled to the benefits of ownership even though another party such as a broker or bank--the nominal owner--actually has possession and title to the security.
A person or entity who is the recipient of or will receive some or all proceeds of money or property held by the current owner upon a specified event or condition. Such vehicles as life insurance policies, inheritances, annuities or trusts may require that a beneficiary be named.
A form used in a competitive municipal bond underwriting in which a firm can submit a bid to the issuer.
Industry lingo that has come to connote a sharp drop in the financial markets. The first Black Friday occurred on September 24, 1869. A group of financiers attempted to corner the gold market, which caused a panic and then an economic depression. The panic of 1873 also began on Friday.
Monday, October 19, 1987--the day when the Dow Jones Industrial Average fell a record 508 points. This drop was on top of a series of sharp drops that occurred the previous week. The drop may have represented investors' apprehensions about inflated stock prices, the federal budget and trade deficits. However, there are many who blame program trading for the extreme volatility.
A recommendation made by a brokerage firm to buy or sell a particular stock or stocks in a specific industry. The advice is intended for investors without regard to their investment objectives or portfolio size.
A large quantity of a security that is either held or traded. Generally, a block is considered to be 10,000 shares or more of stock and 200,000 or more bonds.
A large amount of a stock's shares sold as a single unit.
A log in which daily activities are recorded. Such daily activities include orders placed and executed and, securities received or delivered.
A hot issue--shares of a new securities offering that are sold very quickly. Investors usually do not obtain all the shares they want. During a blowout, a corporation is most likely to obtain a higher price for their securities.
A publicly traded company known for the quality and wide acceptance of its products, services and management, and for its ability to profit and pay dividends to shareholders. Examples of blue chip stocks are IBM and General Electric. The term originates from blue poker chips--the most valuable chips.
Employees of the Chicago Board Options Exchange who handle orders that cannot be immediately executed. These types of orders are called "away from the market orders."
A certificate of indebtedness in which the issuer (borrower) promises to pay the bondholder (creditor) a specified amount of interest for a specified time period and to repay the debt at maturity. Obligations that are due in more than one year are classified as bonds whereas if the debt is for less than one year, it is called a "note." Bondholders are creditors of the issuer and they do not have ownership privileges. A bond may be registered either by issuing certificates in the bondholder's name, book-entry or in bearer certificates.
There are many different kinds of bonds and different methods of evidencing bond ownership. The most common types are:
- Secured bonds are backed by collateral that may be sold if the issuer fails to pay interest and principal when they are due.
- Unsecured bonds or debentures are only backed by the full faith and credit of the issuer. There is no specific collateral.
- Convertible bonds give holders the right to exchange the bonds for other securities of the issuer at a future date, under prescribed conditions.
Bond Anticipation Note (BAN)
A short-term debt instrument that is issued by a municipality or a state. At maturity, the debt is paid from the proceeds of a new bond issue. BANs usually provide an investor with a tax-free yield that may be higher than other comparable tax-exempt debt instruments of the same maturity.
Broker who trades bonds on an exchange floor or in fixed-income markets.
"Bond Buyer, The"
Daily newspaper that provides statistics and indexes that are utilized in fixed-income markets. The publication also lists long term government bonds and compares their after-tax yield with tax-free municipal yields.
Bond Buyer's Indexes
Municipal bond indexes that are published daily in "The Bond Buyer," a newspaper that reports on the fixed-income markets. The indexes are a standard by which municipal bond yields are measured. Investors use Bond Buyer Indexes to plot interest rate patterns.
A law firm or attorney who reviews a new municipal issue and then issues the legal opinion.
A section on the floor of an exchange in which members gather to transact bond orders. Because this area is separate from stock traders, it is called a "bond crowd."
A mutual fund whose objective is to seek high income and preservation of capital by investing mainly in bonds. Some funds may aim to achieve a proper mix between short-term, intermediate-term and long-term maturities. The fund can be taxable or tax-free.
A form used in the transfer of registered bonds from one owner to another. A bond power replicates the assignment form on the back of the bond certificate, but it is separated from the certificate. Hence, a bond power is sometimes called an "assignment separate from certificate." Although both achieve the same goal, a bond power has a safety advantage in being separate.
Securities that are registered to an owner without the issuance of a physical certificate. Ownership is reflected by an entry in the issuer's books. This method of registering securities has grown in popularity because investors need not worry about the location of their certificates and it requires less paperwork for a brokerage firm.
An accounting term that states the equity value of an outstanding share of stock. A stock's book value is determined by dividing the amount of stockholders' equity by the number of common shares outstanding. A company's book value may be of no relevance to its' market value.
Dollar amount that clients can buy securities on margin. The margin limit is dependent on the type of security--usually 50% of a stock's value, 30% of a bond's value and 100% of a cash equivalent's value (i.e., money market funds). Buying power can also refer to securities hypothecated (pledged) to a lender as loan collateral. The lender's policies and the type of security determine the collateral's loan value.
A security's lowest market price or the market's lowest level as determined by any of the major indexes. The bottom can either be for a particular trading day, year or cycle.
Person who looks for investments that have fallen to what they perceive to be the security's bottom prices before it starts to turn upward.
Bottom-Up Approach to Investing
An investment approach whereby an investor will search for individual stocks that are performing well. This approach assumes that individual corporations can do well even though its industry is not doing well.
The physical location in a brokerage house where securities or other documents are held in safekeeping. These securities may qualify for stock loans or as bank loan collateral. The determination is dependent upon regulations concerned with the safety and segregation of clients' securities.
An option position composed of four different contracts--a long call/short put with identical exercise prices and expiration dates, combined with a short call/long put with identical exercise prices and expiration dates.
Branch Office Manager (BOM)
Individual who is in charge of a branch office of a brokerage firm or a bank. BOMs who supervise the activities of at least three brokers must pass supervisory tests given by the exchanges and the NASD.
Breadth of the Market
Also called "advance/decline" indexes, it is a percentage of stocks participating in a market move. If 2/3 of the stocks listed on an exchange rise during a trading session, most analysts will consider the move to be a good breadth of the market.
1: A discrepancy in a brokerage firm's accounts.
2: A sudden, steep drop in a security's price or in the overall market.
In securities and in options, it is the price where the investor has neither a gain nor a loss from the transaction. However, the break-even point is calculated differently depending on the option strategy. The break-even points are determined by:
- Long calls and short uncovered calls--the strike price plus premium.
- Long puts and short uncovered puts--the strike price minus premium.
- Short covered calls--the purchase price minus premium.
- Short put covered by short stock--the short sale price of underlying stock plus premium.
Movement of a security's price that is above or below an established trading range. The movement may either be above a resistance level or below a support level. A breakout is considered to indicate a continuing move in the same direction.
Dollar levels of investment purchases in a mutual fund that qualify an investor for reduced sales charges. The purchases may either be a lump sum or by accumulating shares.
Solicitation of mutual fund purchases at dollar amounts that are just below the eligibility for a breakpoint (reduced sales charges). Sales within $1,000 of breakpoint are usually considered to be breakpoint sales. It is an unethical practice that is in violation of NASD rules.
Total market value of a corporation if each of its divisions operate independently and has its own stock price. Also called private market value (PMV), analysts look for high PMV in relation to market values to identify bargains and potential target companies.
A person who handles investors' orders to buy and sell securities. For this service a commission is usually charged. Brokers specializing in stocks, bonds, options, or commodities act as an agent.
A security firm that acts as an agent for another security firm.
Certificate of Deposit (CD) that is issued by a bank and bought in bulk by brokerage firms who resell them to their customers. Brokered CD's may pay as much as 1% more than those sold directly by banks, carry federal deposit insurance up to $100,000, are liquid on a secondary market made by the broker, and investors are not charged a commission.
A momentary price rise in an individual security or in the entire stock or commodities market.
Investor who believes an individual security, an industry segment, or the overall market will rise.
An advancing trend in stock prices that usually occurs for a time period of months or years. Bull markets are generally characterized by high trading volume.
An option strategy wherein the investor profits when the underlying security's price rises. (vs. Bear Spread). There are three types of bull spreads:
- Vertical Spread: Concurrently buying and writing (selling) the same options class and the same expiration date, but with different exercise prices.
- Calendar Spread: Simultaneously buying and writing the same options class and sale of options of the same price but at different expiration dates.
- Diagonal Spread: Simultaneously buying and writing the same options class at different exercise prices and different expiration dates. A diagonal spread combines a vertical and a calendar spread.
1: A ticker tape pattern that occurs when a series of trades in the same security are displayed consecutively.
2: Round lot orders that are combined together to be executed at the same time. Bunching is also used with odd lot orders to save each client the odd lot differential that is sometimes charged for small orders.
Business Conduct Committee
A committee, organized under the NASD in each of its 13 districts, that acts as a hearing tribunal for trade practice complaints made under the Code of Procedure--also called the "District Business Conduct Committee." The committee ascertains the facts and, when warranted, imposes discipline. Decisions may be appealed to the NASD's Board of Governors.
The securities industry considers a business day to be any day that the financial markets are open for trading. In determining settlement dates for regular way securities transactions--trade date plus 3 business days--weekends and legal holidays are not counted.
A convertible security whose conversion feature is considered worthless because the price of the common stock to which they convert has dropped so low. Thus, the convertible trades like a fixed-income investment.
Leveraged buyout whereby the target company's business activities or assets are sold by the buyer to repay the debt that financed the takeover.
Complex option strategy that involves writing (selling) two calls and buying two calls on the same or different markets and several expiration dates. One of the call options has a higher strike price and the other has a lower strike price than the other two call options. If the underlying stock price remains stable, the investor profits from the premium income collected on the options that are written.
Buy And Hold Strategy
Strategy whereby an investor acquires shares of a corporation over many years.
Buy And Write Strategy
An options strategy whereby investors write (sell to open) covered call options on securities that they already own. To be considered covered, the number of option contracts may not exceed the equivalent number of shares held (1 contract normally equals 100 shares). If an investor owns 1000 shares of XYZ, for example, he may write up to 10 option call contracts on XYZ for it to be considered covered. The writer may receive both stock dividends from the underlying security and premium income from the call options. The inherent risk of this strategy is that the writer may have to sell their stock below the current market price if the call is exercised by the option buyer. For example, a writer sells a covered XYZ Nov 50 call and a buyer purchases XYZ Nov 50 calls. If the current market price is 53 when the buyer exercises the call options, the writer's stock is called away (sold) at 50--not 53.
Lingo that refers to the covering of a short sale by purchasing the same security.
A procedure that occurs when a seller fails to deliver securities sold. The broker must purchase the security on the open market on behalf of the seller to complete the transaction.
A security's quick rise in price that draws many buyers, leaving them with no one to sell to at higher prices resulting in a subsequent fall in the security's price. Technical chartists ascertain a buying climax when they see a sharp price rise along with increased trading volume in the security.
Buying On Margin
Buying securities on credit in an established margin account at a brokerage firm.
The dollar amount available to purchase securities on margin. The amount is calculated by adding the cash held in the brokerage accounts and the amount that could be spent if securities were fully margined to their limit. If an investor uses their buying power, they are purchasing securities on credit.
An order to purchase a security at a lower price than its current market price. Traders will try to execute this type of order when the security's price temporarily drops.
Buy On The Bad News
Investment strategy established from the belief that a security's price will plunge shortly after the corporation reports bad news. Investors who buy at this time deem that the security's price will rise when the news improves.
An order placed with a brokerage firm to purchase a specified quantity of a security at stipulated parameters, for example, price (limit or market) and duration.
A party that purchases a controlling percentage of a corporation's stock, through negotiation or a tender offer, to take over the corporation's assets and operations.
Buy Stop Order
Buy order for a listed security that stipulates that it be held until the security's market price rises to the stop price. Once the stop price is reached, the order is considered to be a market order to buy at the best available price.
Buy The Book
An order placed with a brokerage firm to buy all available shares from the security's specialist and from other broker-dealers at the security's current offering price. Before the advent of computers, specialists used to keep track of buy and sell orders in a book. Thus, the name "buy the book." This type of order is most likely to be placed by institutional buyers and professional traders.
A written agreement established by parents that allows them to pass their assets to their children in the event of their death.