This section presents a glossary of terms and definitions.
AIM
The Alternative Investment market. The junior arm of the London
Stock Exchange.
ANALYST
An individual who does investment research and makes recommendations
to buy, sell, or hold. Most analysts specialize in a single industry or
business sector. I will not comment on their general level of incompetence
without consulting my lawyer.
AON, "all or none"
A buy or sell order with this designation loses normal order
priority if the amount of shares available doesn't match or exceed the
order size. There may be some specialized circumstances where it could
be useful, such as late in the day on a GTC entry (to avoid a fractional
fill such as 100 shares of a 1000 share order, with resulting doubling
of total commissions when the rest of the order fills the following morning).
ARBITRAGE
The simultaneous buying and selling of the same, or equivalent,
shares, options or futures in different markets, to exploit the difference
in price.
AT BEST
An order from a customer to a broker to buy or sell a certain
security at the best current market price available
AT THE MARKET
It doesn't matter how much you have to pay to buy nor how little
you get on a sale, just do it now.
AT THE MONEY
An option whose strike price is equal to the market value of
the underlying share or futures contract.
BALANCE OF PAYMENTS
The difference in value between payments into and out of the
country.
BALANCE OF TRADE
The difference in value between imports and exports.
BASE RATE
The rate at which banks borrow from one another.
Bear
An investor or trader who thinks that the price of a particular
security is going to fall.
Beta
Beta measures the sensitivity of the price of a particular asset
to changes in the market as a whole. If a company's shares have a beta
of 0.7 it implies that the share price will change by 0.7% if there is
a 1% move in the market.
BELLWETHER
security that is seen as a significant indicator of the direction
in which a markets price is moving. For example GE on the NYSE, Cisco
for the Nasdaq and Vodafone for the LSE.
BID PRICE
The quoted bid at which a Market Maker is willing to buy a stock.
(See Market Maker, best bid).
BID/ASK SPREAD
The difference between the price at which a Market Maker is willing
to buy a security (bid), and the price at which the firm is willing to
sell it (ask). The spread narrows or widens according to the supply and
demand for the security being traded.
BID/BIDDISH
As well as the bid being the buying side of the price if I say
a stock is looking bid or biddish it means that I think it feels like
it might go higher.
BLUE CHIP STOCK
A valuable stock that has proven itself; i.e., has been around
for many years. Examples are IBM, GE, BP, etc. The name derives from the
chips used in poker in Monte Carlo, blue always being the most valuable.
BOTTOM PICKING
Purchasing of stock declining in value, or of stocks that have
suffered drastic declines in their prices. Very dangerous at the best
of times.
BP or Basis Point
One one hundredth of a percentage point.
Bull
An investor or trader who thinks the price of a particular security
will rise.
Capital Flight
When money moves rapidly out of a country, often due to an event
which causes investors to suddenly lose confidence.
CABLE
Sterling against the US dollar. So named as the first electronic
currency trades were done via a cable across the Atlantic.
CALL MONEY RATE
Also called the broker loan rate, this is the interest rate that
banks charge brokers to finance margin loans to investors. The broker
charges the investor the call money rate plus a service charge. Investors
who buy on margin will pay this rate.
CB or Central Bank
A guardian of the monetary system. A central bank sets short
term interest rates and oversees the health of the financial system, including
acting as lender of last resort to commercial banks that get into financial
difficulties.
Consumer Prices
What people usually think of as inflation.The prices paid by
whoever finally consumes the goods or services.
DAY ORDER
Order to buy/sell securities at a certain price that expires
if not executed on the day it is placed.
DELTA
The amount by which an option price will change for a unit change
in the underlying future's price.
Discounted Cashflow
How much less is a sum of money, due in the future, worth today?
One method is by discounting the future cashflow, using an interest rate
that reflects the fact that money in future is worth less than money now,
because money now could be invested and earn interest.
DILUTED SHARES
A way of characterizing the number of outstanding shares that
a publicly held company could have. The diluted shares measure is the
sum of the company's normally outstanding shares, the shares that would
be outstanding if every warrant & stock option were exercised, and
the shares that would be outstanding if every security convertible into
the stock (e.g., certain preferred shares) were converted. This is sometimes
used when computing earnings per share numbers. A larger number of outstanding
shares means lower earnings per share, rather obviously; this is known
as "dilution of earnings" or computation of "fully diluted"
earnings
DIVIDEND
A dividend is a payment made to a shareholder out of a company's
earnings.
DNR, "do not reduce"
This is usually assumed unless you specify otherwise, but different
brokers may have different practices and some may require you to specify
DNR if you want it. The order is to be/not adjusted when dividends or
other distributions occur. For example a $1/share dividend on a stock
for which you have entered an order DNR brings the price closer to your
bid or takes it further away from your offer. Without the DNR specification,
on the ex-dividend date your order price is reduced by the amount of the
distribution.
DOWNTICK
Downtick means the next trade is at a lower price than the previous
trade. See uptick
EXCESSIVE TRADING
A broker excessively trades an account for the purpose of increasing
his or her commissions, rather than to further the customer's investment
goals.
FILLING THE GAP
Due to developments after market close and overnight, a stock
price can change by a greater degree than usually happens throughout a
trading day. This creates a gap, that once trading resumes the following
morning, gradually diminishes with normal market activity, returning the
stock to its level from the previous day. The adjustment is called filling
the gap.
FOK,"fill or kill"
This means do it now if the stock is available in the crowd or
from the specialist, otherwise kill the order altogether
FSA
Financial Services Authority. The UK financial services regulator
GDP
Gross Domestic product is the total value of goods produced and
services provided in a country in one year.
Gearing or Leverage
A company's debt expressed as a percentage of its equity. Increased
gearing means increased risk, a rather obvious concept unless you work
at Brewin Dolphin!
GOING LONG
Buying and holding stock.
GOING SHORT
Selling stock short, i.e., borrowing and selling stock you do
not own with the intention of buying it later for less.
GTC,"good till cancelled"
Order to buy/sell securities at a certain price (a limit order);
the limit order stays in the market until you call specifically to cancel
it. Some brokers restrict the length of time a GTC can remain open to
"end of same month", "no more than 30 days" or some
such thing, but with most it becomes a permanent part of the book until
it gets executed or you cancel.
Harry Hindsight
On a trading desk you will often hear a trader say " ****
I meant to buy that share and its now a **** of alot higher." Other
traders will generally shout back:"Yeah, yeah, Harry Hindsight the
best dealer in the world," because Harry only ever deals after the
event. He is therefore the best dealer in the world.
HEDGE
A person who buys or sells securities for his or her own account.
The individual investor is also called a retail investor or retail shareholder.
Hot Money
Money that is held in one currency but is liable to switch to
another currency at a moments notice in search of the highest available
returns.
INSTINET
See The Institutional Networks Corporation.
INSTITUTIONAL INVESTOR
A bank, mutual fund pension fund, or other corporate entity that
trades securities in large volumes. (See also buy-side trader, fourth
market, and qualified institutional investor).
INSTITUTIONAL NETWORKS CORPORATION (INSTINET)
A computerized service that allows subscribers to display tentative
bid and ask quotes. INSTINET registered as a stock exchange with the Securities
and Exchange Commission; it supports the "fourth market". (See
fourth market, SelectNet).
Lagging Indicator
Old news. Some economic statistics move weeks or months after
changes in the business cycle.
LBO or Leveraged Buy-Out
Buying a company using borrowed money which is secured against
the assets of the company being acquired.
Leading Indicators
Statistics that point to the future direction of the economy
and the business cycle.
LIBOR
Short for London interbank offered rate, the rate of interest
banks charge each other for loans.
LIMIT ORDER
An order given to your broker specifying a particular and stated
price limit for a trade to be executed
LIQUIDATION
Any transaction that offsets or closes a position
Long
When you own a security. If you buy shares in HSBC you are "long"
of those shares. The opposite to short.
LOD
Low of day.
Macroeconomics
Analysing the big picture of the economy such as growth, inflation
and unemployment.
MARGIN
A sum of money required by a broker to initiate a trade.
MARKET MAKER
A firm that maintains a firm bid and offer price in a given security
by standing ready to buy or sell at publicly-quoted prices. The NASDAQ
Stock Market is decentralized network of competitive Market Makers. Maker
Makers process orders for their own customers and for other NASD broker/dealers;
all NASD securities are traded through Market Maker firms. Market Makers
also will buy securities from issuers for resale to customers or other
broker/dealers. About 10 percent of NASD firms are Market Makers; a broker/dealer
may become a Market Maker if the firm meets capitalization standards set
down by the NASD.
MARKET MAKER SPREAD
The difference between the price at which a Market Maker is willing
to buy a security and the price at which the firm is willing to sell it.
Microeconomics
The study of individual pieces that make up an economy, such
as consumption and savings.
MUPPET
Someone too stupid for their own good.
NAS
The Nasdaq market
NASDAQ
The National Association of Securities Dealers Automated Quotation
system.
OFFERED
Means that it feels like there are sellers in the market and
it might com down.
ORDER FLOW
The flow of orders that a broker or market maker receives from
customers.
ORDER MATCHING
The Market Maker practice of pairing buy and sell orders for
like amounts of securities at identical prices.
ORDER TICKET
A form completed by a registered representative of a brokerage
firm upon receiving order instructions from a customer.
OVER VALUED, UNDER VALUED, FAIRLY VALUED
Judgmental adjectives describing that a market or stock is over/under/fairly
priced with respect to what people believe the security is really worth.
Price/Earnings ratio
The ratio of the market price of a share to the company's earnings.
(profits)
Real Interest Rate
The interest rate less the rate of inflation.
RESISTANCE
A level above the existing price where sellers are likely to
emerge.
SCALP
To make a tiny profit on a trade
Securities
Financial contracts such as bonds, shares or derivatives, that
grant an owner a share in an asset.
Securitisation
Turning a future cashflow into tradable, bond like securities.
SECURITIES AND EXCHANGE COMMISSION (SEC)
The federal agency created by the Securities Exchange Act of
1934 to administer that act and the Securities Act of 1933. The statues
administered by the SEC are designed to promote full public disclosure
and protect the investing public against fraudulent and manipulative practices
in the securities markets. Generally, most issues of securities offered
interstate commerce or through the mails must be registered with the SEC
Short
The opposite to Long. When you are speculating on the security
falling in value. Nowadays it is very easy to speculate in such a manner
on shares.
SMALL ORDER EXECUTION SYSTEM
Automated execution system for processing small order agency
executions of NASDAQ securities (up to 1,000 shares).
SNIPER
Someone who waits to hit changing prices. The lowest of the low!
SOX
The Philadelphia Semi Conductor index. This futures contract
contains a basket of semi conductor chip manufacturers.A number of traders
like to follow this as due to the ubiquity of computer chips thei manufacturers
are seen as often leading market moves.
Spot Price
The price quoted for a transaction that is to be made on the
spot, I.E. for delivery and payment now rather than at some point in the
future. The spot price for currencies is generally for delivery in two
working days.
Spread
The difference between the buying and selling price.
SPREAD
The difference between the bid price at which a Market Maker
will buy a security, and the ask price at which a Market maker will sell
a security.
SQUEEZE
When the market moves against the prevailing view thus forcing
the majority of the participants to liquidate their positions.
STOP ENTRY
To enter a position when breaking through a level. i.e. if the
S&P is trading at 805 I might put a stop entry to buy on a break of
810 or a stop entry to sell on a break through 800.
STOP or STOP LOSS
An order placed with a broker or market maker to be cut out of
the existing position for a loss.
SUPPORT
A level below the existing price where buyers are likely to emerge.
SWISSY
The Dollar against the Swiss Franc.
TAKING OUT THE STOPS
When a market maker or a group of traders will consciously force
the market through a price level in order to trigger stop loss orders.
TEEHEE
A sneaky mischievous laugh.
TENDER
Tender (v), to provide, to offer for delivery. Frequently used
as a short version of "tender offer," which is a public invitation
extended to shareholders of a company by an organization that wishes to
buy the company (i.e., a bid to take control of the company). Following
a tender offer, shareholders who have accepted the offer surrender ("tender")
their shares in exchange for payment.
THE SHRUB
George Bush. As in little bush.
TOPPISH
Means that it feels like there are sellers in the market and it might
come down
UPTICK
Uptick means the next trade is at a higher price than the previous trade.
Meaningful for the NYSE and AMEX; not so meaningful for OTC markets (NASDAQ).
Certain transactions can only be executed on an uptick (e.g., shorting).
VOLATILITY
The degree of price fluctuation for a given asset, rates, or index. Usually
expressed as a variance or standard deviation.
VOLUME
Amount of trading activity, expressed in shares or dollars, experienced
by single security or the Entire market within a specified period, usually
daily, monthly, or annually.
YIELD
The money earned from an investment.