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L

Lapsed Option
An option that has no value because it expired without being exercised.

Last-In First-Out (LIFO)
A method used to determine the cost of goods sold. In making this evaluation, the method assumes that company's newest inventory (last in) is sold first (first out). When prices are rising, a company using the LIFO method will have lower gross profits and taxable income because the cost of goods sold will be higher (the newest inventory was costlier to produce).

Last Sale
The most recent transaction in a specific security. In contrast, the term "closing sale" is the final trade for a security in a trading day.

Late Tape
A delay is displaying price changes of securities. This usually occurs on an especially heavy trading day. When the tape is greater than five minutes late, the security's price is shown without its first number. For example, a trade that occurred at 43 1/8 will be displayed as 3 1/8.

Leader
1: Stock or group of stocks that are spearheading a rising or declining market. Institutions who want to demonstrate their own market leadership may trade heavily in leaders.

2: A company's whose product has a large market share.

Leading Indicators
Twelve components of an index that forecast ups and downs in a business cycle. The numbers, adjusted for inflation, are released monthly by the US Commerce Department's Bureau of Economic Analysis. Its full name is the "Composite Index of 12 Leading Indicators." Some of the components are unemployment, new orders for consumer goods and money supply (M-2).

Leg
1: One part of a spread option. A trader, for example, buys a call option and combines it with another call option on the same underlying security that has the same strike price and a different expiration date. Each of the two options is a leg of the spread. Selling one of the legs is termed "Legging Out."

2: A prolonged stock market trend. A bull or bear market may have multiple legs.

LEGAL
A New York Stock Exchange computerized database that tracks member firm audits, customer complaints and enforcement actions against member firms. LEGAL is written in all capitals. However, it is not an acronym.

Legal Entity
Individuals or organizations that can enter into a contract and may be sued for not performing in accordance with the contract. A minor is not a legal entity and cannot sign a contract.

Legal Investment
An investment vehicle that a person with fiduciary responsibilities may purchase. Each state has legal investment guidelines that a fiduciary must follow. Investment grade bonds are an example of a legal investment.

Legal List
A list of legal investments that are selected by various states in which institutions and fiduciaries, such as insurance companies and banks, may invest. The list is usually comprised of high quality debt and equity securities. Instead of a legal list, some states apply the Prudent Man Rule--the security has to be one that a reasonable man would invest in. In either case, both are used to protect the money that individuals place with fiduciaries and institutions.

Legal Opinion
Written opinion by an attorney who attests to a municipal bond issue's legality--that is, it is authorized and the interest's tax status is correct.

Legal Transfer
Securities that require more documentation than just a stock or bond power to transfer the certificates from the seller to the buyer. Among others, these certificates may be registered in the name of trusts, decedents, corporations, partnerships, or investment clubs. A corporation who has sold a stock, for example, would need to submit a corporate resolution with a raised seal along with a stock power.

Legging Out
Closing one side of a hedge position that leaves the other side as a long or short position. A leg, according to Wall Street lingo, is one side of a hedge transaction. A trader, for example, has an option spread in which he bought an XYZ May 50 call and a sold an XYZ July 65 call. If the XYZ May 50 call (one side of the hedge) is closed (sold), the trader is legging out. The trader is left with a short leg.

Letter Of Intent (LOI)
1: A contract signed by a mutual fund shareholder that indicates that the shareholder intends to invest at least a certain amount of money, during a 13-month period, to qualify for a reduced percentage sales charge. A letter of intent may be backdated a maximum of 90 days. Any shares, bought before the letter of intent was signed and within the 90 days, will be adjusted to reflect the reduced sales charge.

2: A letter of intent may also refer to a preliminary contract between two parties negotiating a merger or an acquisition.

Letter Security
A security that is not registered with the SEC and thus, cannot be sold in the marketplace. The issues are sold under an investment letter in which the purchaser states the purchase is for investment purposes and not for resale. The certificates have a restrictive legend that indicates they are not registered. Because the investment letter is essential to the security's issuance, this type of security is called either "letter security," "letter stock," or "letter bond."

Letter Of Testamentary
A court issued affidavit that appoints an executor for a decedent's estate.

Level Debt Service
A stipulation in a municipal charter stating that each year's interest and principal payments on municipal debt must be relatively equal. This attempts to make it easier to project the amount of tax revenue needed to meet obligations.

Level I Service Of NASDAQ
An electronic subscription service that provides the highest bid and lowest offer on NASDAQ traded securities. Brokerage firms use this service to give current quotes to its brokers and clients.

Level II Service Of NASDAQ
An electronic subscription service that identifies market makers and provides their bids and offers on NASDAQ trade securities. The service gives competitive information on NASDAQ traded securities. It is only accessible to traders of NASD members and institutional investors.

Level III Service Of NASDAQ
An electronic subscription service that is accessible only to registered market makers. It allows them to enter their own bids and offers for securities in which they are registered. In effect, Level III is an electronic marketplace.

Leveraged Buyout (LBO)
A takeover of a corporation in which the acquirer uses borrowed funds. The target firm's assets are commonly used to secure the acquirer's loan. However, they may also use their own assets as collateral. A company's management might also use this technique to takeover their own company--that is, the management takes the company from being publicly owned to privately owned. In most LBOs, shareholders will receive a premium above the security's current market value.

Leveraged Company
A company that has debt in its capital structure. A company whose capital structure consists of more than one third debt is commonly considered to be highly leveraged.

Leveraged Investment Company
1: An open-end investment company or mutual fund that is allowed to borrow capital from a lender. This provision must be stated in its charter.

2: A dual-purpose investment company that issues both income and capital shares. Holders of income shares receive dividends and interest on investments. Holders of capital shares receive all capital gains on investments. Essentially, each class of shareholder leverages the other.

Liability
The claims by creditors against a corporation or an individual. A corporation's liabilities include accounts payable, wages payable, dividends declared payable, accrued taxes payable, and long-term liabilities (bank loans and debentures).

Lift
Investment lingo used to indicate a rise in securities prices as measured by the Dow Jones Industrial Average or other market averages. A lift is usually caused by good economic or business news.

Limited Discretion
An agreement whereby a client allows their broker to make certain types of transactions without first notifying the client. For example, the broker will sell an option position that is about to expire when it is in-the-money.

Limited Liability
Condition in which an investor cannot lose more money than the amount that was invested.

Limited Partner
An investor in a limited partnership who does not participate in the management of the partnership and have limited liability.

Limited Partnership (LP)
Organization that consists of a general partner and limited partners. The general partner manages one or more projects for which the organization was formed. Limited partners invest money into the project; their risk is usually limited to the amount that they invested, and they do not have any day-to-day responsibilities of running the partnership. Limited partners typically receive income, capital gains, and tax benefits while the general partner collects fees and a percentage of capital gains and income. Common limited partnerships are in real estate, oil and gas, and equipment leasing, but there are other kinds of projects.

Limited Risk
When buying options contracts, the amount of the premium paid. For example, the buyer of a call option cannot lose more than the premium even if the underlying security does not rise during the option's life. A buyer of a put option also cannot lose more than the premium even if the underlying security does not drop. Naked (uncovered) put writers are limited to the strike price less the option premium received. Naked call writers have unlimited risk as the value of a security can infinitely increase.

Limit Order
An order that instructs a broker to buy or sell a specified amount of a security at a specified price or at a better price. In the case of a buy, it will never be executed above the limit price. Conversely, in a sell, the order will never be executed below the limit price.

If the limit price is not within the current market quote, it is said to be "away from the market." The order is entered on the specialist's book beneath any similar orders received earlier. These similar orders are said to be "shares ahead of you." Thus, the limit order may not be executed immediately or only partially, or not at all.

Limit Price
The price that is set in a limit order. The price stipulates to the broker to execute the order only at the limit price or better.

Limit Up, Limit Down
The maximum price that a commodity futures contract is permitted to move in one trading day. In extraordinary circumstances, a future may move limit up or limit down for several days in a row.

Liquid Asset
Actual cash or an investment vehicle that is easily convertible into cash such as bank deposits and money market fund shares. A corporation's liquid assets, in reference to its financial statement, are cash, marketable securities, and accounts receivable.

Liquidate
The process of selling securities or assets to obtain cash.

Liquidation
1: Upon a brokerage client's failure to meet a margin call, the closing of positions within the account. If the position is long, the security is sold. If the position is short, the security is bought.

2: The dissolution of a company in which its assets are sold to pay its debts. Any remaining cash is distributed to its shareholders.

Liquidity
The ability of a stock to absorb a large amount of buying or selling without substantial price movement. Institutional investors are inclined to seek securities that have liquidity so that their trading activity will not have an effect on the stock's market price.

Liquidity Ratio
A gauge of a corporation's ability to meet short term obligations.

Listed Option
A call or put option that has been authorized for trading on, and by, a registered exchange. Its proper name is an "exchange-traded option."

Listed Security
A stock or bond that has been authorized for trading on, and by, a registered exchange. Each stock exchange has different criteria to determine a security's eligibility for listing.

Listing Requirements
Rules of eligibility that a corporation must meet before its stock can be listed for trading on an exchange. Each exchange has different requirements--the New York Stock Exchange (NYSE) being one of the stringent. Some of the NYSE's requirements are that a corporation must have:

  • At least 1,100,000 shares publicly held with a minimum market value of $18 million;
  • A minimum of 2,000 round lot shareholders or a total of 2,200 shareholders and;
  • A minimum pretax annual net income of at least $2.5 million.

Living Trust
See: Inter Vivos Trust

Load
Sales charge paid by investors when purchasing shares of a load mutual fund or units of an annuity--sometimes called "front-end load." This contrasts with a back-end load which charges a fee when the investor redeems their investment. A mutual fund that does not charge a fee is called a "no-load" fund.

Load Mutual Fund
Mutual fund that charges a fee when investors make purchases. This fee (or "load" as it is called) is used primarily to compensate salespeople selling the fund.

Load Spread Option
Process used to allocate a contractual mutual fund's annual sales charge. In a contractual plan, fund shares are accumulated through periodic fixed payments. The maximum sales charge is limited to 9% for the life of the contract. However, up to 20% of any year's investment can be credited against the sales charge as long as the total charge for the first four years does not exceed 64% of one year's investment.

Loan
Transaction whereby an owner of property (lender) grants another party (borrower) to use the property for a specified length of time. The borrower promises to return the property and to pay a fee (interest) for its use. When the property is cash, the borrower signs a promissory note. A loan may be secured with collateral or unsecured.

Loan Consent Agreement
An agreement that is signed by a brokerage client as part of a their margin account documentation. By signing the agreement, the client agrees the broker-dealer may lend the securities.

Loan Value
The maximum amount of credit that a lender may lend against collateral. For example, at 50% of appraised value, a piece of property worth $500,000 has a loan value of $250,000.

With respect to the brokerage industry, Regulation T of the Federal Reserve Board stipulates the maximum percentage of eligible securities that a brokerage firm may lend to a margin account client.

Lock Box
1: Process whereby a firm's customers mail payments to a post office box. The bank collects the checks from the lock box and deposits them into the firm's account. The company is then notified of the deposits either by telephone or electronically.

2: Service provided by a bank in which they hold a customer's securities and deposit any income or dividends received.

Locked In
1: Lingo used to indicate that a rate of return on an investment has been guaranteed for a specific length of time. Examples of such investments are certificate of deposits (CDs) and fixed rate bonds.

2: Said of a security whose profits or yields have been secured through use of a hedge.

3: Said about an investor who does not sell a profitable security because the profit would immediately be subject to capital gains tax.

Locked Market
A situation that occurs in a highly competitive market in which a security's bid and ask prices are the same. Once more buyers and sellers submit their orders, the market will unlock.

Long
Brokerage lingo signifying that an investor has ownership of a security. Ownership rights entitle the investor to receive any income and dividends paid by the security and, once sold, to profit or to lose money. The owner also may transfer ownership of the security by sale or by gift.

Long Bond
A bond maturing in 10 or more years. Because an investor's money is tied up for a long time, the bonds are riskier than shorter term bonds of the same quality. Thus, they usually pay a higher yield.

Long Coupon
The first interest payment on a bond that represents interest for more than six months. A long coupon occurs when a bond's issuance date is more than six months before the first scheduled payment. A short coupon is interest covering less than six months.

Long Hedge
An option or futures contract that is bought to protect against an investment risk. For example, if interest rates are expected to decline, a call option will be bought to lock in a fixed income security's present yield.

Long Leg
The long part of an option spread (the buying and selling of options within the same class at the same time). In other words, the part of the spread that is bought as opposed to written (sold). For example, if a spread is composed of a long call option and a short call option, the long call is the long leg.

Long Market Value
The dollar value of the long positions within an investor's brokerage account.

Long Position
Securities owned by an investor that are held in a brokerage account.

Long Term
1: Referring to bonds--a bond with a maturity of ten years or longer.

2: Referring to stocks--a stock which is held for a year or more by an investor.

Long Term Debt
Liabilities that are due to be repaid after more than one year. This is inclusive of bonds and long-term loans.

Low
The lowest price per share for a security during a period of time. When talking about a security's low, it may be in regards to the "day's low," the "annual low," or the "historical low." The day's low is the lowest price that a security reached during the current day's trading session. An annual low is the security's lowest price over the past 52 weeks. The historical low represents the security's lowest price since the security came into existence.

Lump-Sum Distribution
A single payment of all funds to an owner of such accounts like an IRA, a pension plan or a profit sharing plan.