07.13
TICK indicates the minimum price change of a security, either up or down.
Movement in a stock’s value can be characterized by its direction. If a stock is sold for $5 and later sells for $6, that movement is called an UPTICK. Conversely, if that same stock is sold for $5 and then sells for $4, that is a DOWNTICK.
LAST SALE is the price of the most recent sale of a stock. The number reflects the value of a stock at a moment in time, but evolves as every transaction occurs.
VOLUME is the total number of shares traded in a single security or an entire market over a certain period of time. High volume can indicate significant change in value of a stock, and can signal imminent positive or negative market fluctuations.
BEST ASK is the lowest price a seller is willing to accept for the sale of their stock, and is also known as the offer price. The quote stipulates both a price, and the amount of security the seller will offer at the given price.
BEST BID is the highest offer made by an investor to purchase a stock. The bid shows the quantity of shares an investor is willing to purchase at the highest price offered.
PREVIOUS CLOSE is the final traded price of a stock or market index on the preceding trading day. By tracking a security’s closing price over any given time period, investors get a sense of that security’s changing value.
DAILY HIGH, commonly referred to as TODAY’S HIGH, is the highest price at which a stock traded over the course of one trading day. Typically, the daily high is higher than the closing price.
DAILY LOW, commonly referred to as TODAY’S LOW, is the lowest price at which a stock traded over the course of one trading day. Typically, the daily low is lower than the closing price.
DIVIDEND is the portion of a company’s earnings distributed to shareholders. The dividend is most often quoted as a dollar amount per share. The dividend value is decided by the company’s board, and may be distributed as cash, stock or property.
YIELD is a percent of the market price of a stock paid out to shareholders. Dividend yield is calculated by taking the amount of dividends paid per share over the year and dividing by the stock‘s price.
Mature, well-established companies tend to have higher dividend yields, while young, growth-oriented companies tend to have lower ones, and some small emerging companies don’t have a dividend yield at all because they don’t pay out dividends.
OPENING PRICE is the price for a given stock at the beginning of a trading day. This price can often differ from the previous close due to after hours trading.
CHANGE is the difference between the current price of a stock, and the price from close the previous day.
52-WEEK HIGH/LOW is the highest and lowest price at which a stock has traded in the past year, or 52 weeks. These can be important indicators for investors looking for good “buy-low” candidates. If a stock is trading at its 52-week low, the market may be valuing it at less than its actual or “intrinsic value,” and it could be primed for a bounce-back. Investors must still do their homework, but such a stock could have potential. Similarly, a stock trading at its 52-week high could be overvalued by the market and primed for a correction.
EQUITY: also refers to total assets minus total liabilities, shareholder’s equity, net worth, or book value. The term stands for ownership interest in a corporation in the form of common stock or preferred stock. In real estate, equity is the difference between what a property is worth and what the owner owes against that property. In the context of a futures trading account, equity represents the value of the securities in the account, in which it assumes that the account is liquidated at the going price. In the context of a brokeage account, equity represents the net value of the account.
SHORT SALE: refers to borrowing a security from a broker and selling it, it must later be bought back and returned to the broker. Short selling, or “selling short”, is a technique used by investors who try to profit from the falling price of a stock. Profit is made through the difference between the price at which the stock was sold and the cost to buy it back, minus commissions and expenses for borrowing the stock. If the price of the shares increase, the potential losses are unlimited. Moreover, shortselling is also a very risky technique, for example, when an investor wants to sell short 100 shares of a company, believing that it is overpriced and will fall, the investor’s broker will then borrow shares from someone who owns them with the promise that he/she will return them later. The investor then sells the borrowed shares immediately at current market price, and if the price of the shares drops, he or she will have to cover the short position by buying back the shares, and his or her broker will return them back to the lender. The company’s shares may go up and up, but at some point the investor has to replace the 100 shares he/she sold. In that case, the losses can mount without limit until the short position is covered.
ACQUISITION: also called takeover. The term refers to acquiring control of a corporation, called a target, by stock purchase or exchange, either hostile or friendly.
PREEMPTIVE RIGHT: also called subscription priviledge or subscription right. The term refers to the right of current shareholders to maintain their fractional ownership of a company by buying a proportional number of shares of any future issue of common stock.
BROKER: a broker is an individual or a firm that acts as an intermediary between the buyer and the seller. The broker usually charges for commission. Moreover, a license is also required for securities and most other products.
STOCK: also called equity, equity securities, or corporate stock. It is an instrument which signifies an ownership position within a corporation, and also represents a claim on its proportional share in a corporation’s assets and profits. The ownship within a company is determined by the total number of shares outstanding. Most stock also provides voting rights, which give shareholders a proportional vote in certain corporate decisions. Only certain types of companies called a corporation has stock; others such as sole propriertorships and limited partnerships do not issue stock.
SHARE: Certificate representing one unit of ownership in a corporation, limited partnership, or mutual fund.
PINK SHEETS: is published by the National Quotation Bureau, and it is used by the brokerages. Pink Sheets is a daily listing of bid and ask prices for over-the-counter stocks not included in the daily Nasdaq over-the-counter listings.
OVER-THE-COUNTER: OTC, also called unlisted. It is a security that is not traded on an exchange, usually due to an inability to meet listing requirements. Brokers or dealers often negotiate directly with one another over computer networks and by the phone, their activities are also monitored by NASD. OTC stocks are usually very risky because they are stocks that aren’t considered large or stable enough to trade on major exchange. In addition, they tend to trade infrequently, which makes the bid-ask spreads larger.
SUBSIDIARY: A company for which a majority of the voting stock is owned by a holding company.
SHELL: A corporation with no real assets or operations; sometimes fraudulent.
DUE DILIGENCE: It is a process of investigation that is performed by the investors into the details of a potential investment, such as examination of operations and management, as well as the verification of material facts.
RESEARCH AND DEVELOPMENT: R & D. The term refers to discovering new knowledge about certain products, processes and services, and then applying that knowledge into creating new and improved products, processes and services that fill market needs.
IPO: Initial Public Offering. IPOs are usually used as a way for young companies to gain necessary market capital. It refers to the first sale of stock by a company to the public. The companies that offer an IPO can either be new companies, young companies, or companies that have been around for years and have finally decided to go public. IPOs can be a risky investment, but often have the potential for significant gain.
MEZZANINE FINANCING: refers to late-stage venture capital. It is usually the final round of financing prior to an IPO.
DEPOSITORY TRUST COMPANY: It is the world’s largest securities depository, which holds about $20 trillion of assets in custody at any time. DTC is a central repository through where members electronically transfer stock and bond certificates. It was initially set up to provide an infrastructure for settling trade in municipal, morgage-backed and corporate securities in a cost-efficient and timely manner. DTC is also a member of the Federel Reserve System, which is registered with the Security and Exchange Commission, and owned by the Depository Trust and Clearing Corporation.
AUTHORIZED SHARES: also called authorized stock or shares authorized. The term refers to the maximum number of shares of stock that a company can issue. Although the number is usually specified initially in the company’s charter, but it can be changed with shareholder approval. Usually a much greater number of shares are authorized than required to give the company flexibility to issue more stock as needed.
SHARES OUTSTANDING: also called outstanding stock. It refers to the shares of a corporation’s stock that have been issued and are in the hands of the public.
LIQUIDITY: The ability of an asset to be converted into cash quickly and without any price discount.
CLEARING FIRM: also called clearing corporation or clearing house. It is an organization that works with the exchanges to handle confirmation, delivery, and settlement of transactions. These corporations play a key role in ensuring that executed trades are settled within a specified period of time and in an efficient manner.
INVESTMENT BANKER: An individual or institution which maintains broker/dealer operations, maintains market for previously issued securities, and offers advisory services to investors. In addition, it also acts as an underwriter or agent for corporations and municipalities issuing securities. Investment banks also have a large role in facilitating mergers and acquisitions, private equity placements and corporate restructuring. The difference between investment banks and traditional banks is that the former one do not accept deposits from and provide loans to individuals.
INFLATION: opposite of deflation, this term refers to the general upward price movement of goods and services in an economy. It is usually measured by the Consumer Price Index and the Producer Price Index. As the cost of goods and services increase, the value of a dollar will fall due to an individual’s unability to purchase as much with that dollar as he/she previously could. Fed actively tries to maintain a specific rate of inflation, which is usually 2-3% since the annual rate of inflation has fluctuated greatly over the last half century, which ranged from nearly zero inflation to 23% inflation.
AUDITED FINANCIAL STATEMENTS: A company’s financial statements which have been prepared and certified by a Certified Public Accountant. An auditor can have unqualified opinions, in which he/she agrees with how the company prepared the statements; for qualified opinions, he/she often states different aspects of the company’s statements that he/she does not agree with. In certain cases, an auditor can have no opinion on financial statements at all, which, when that happens, the scope of the audit was insufficient. In the United States, the auditor certifies that the financial statements meet the requirements of the U.S GAAP.
FINRA: Financial Industry Regulatory Authority. It is a self-regulatory organization that was founded in 2007. Finra is run by a Board that takes half of its representatives from the securities industry and half from the public. This company is responsible for for the operation and regulation of the Nasdaq stock market and over-the-counter markets. It also investigates complaints against member firms and tries to ensure that all of its members adhere to both its own standards and those laid out by SEC. In addition, FINRA also has the power to expel its members from an exchange in the case of wrongdoing, however, it can not take legal action against a member other than reporting it to the SEC.
STOCK CERTIFICATE: also called certificate of stock. It is a document which reflects the legal ownership of a specific number of stock shares in a corporation.
EDGAR: Electronic Data Gathering, Analysis and Retrieval. Electronic filing using EDGAR was made mandatory for most documents in 2002, this database is also available for the public to access. The SEC’s system used by all public companies to transmit required filings, such as quarterly reports, annual reports and ongoing disclosure obligations.
CAVEAT EMPTOR: Let the buyer beware.
NASD: National Association of Securities Dealers. It was merged with the NYSE Regulation, Inc. in 2007 to form the organization, which is now known as FINRA.
NASDAQ: National Association of Securities Dealers Automated Quotation System. This computerized system is established by NASD to facilitate trading by providing brokers/dealers with current bid and ask price quotes on over-the-counter stocks and certain listed stocks. All trading on the Nasdaq exchange is done over a network of computers and telephones, in other words, Nasdaq does not have a physical trading floor that brings together buyers and sellers. Unlike the NYSE, Nasdaq does not employ market specialists to buy unfilled orders. Once a price is agreed upon, the transaction is executed electronically.
