A
A Nasdaq stock symbol specifying that the stocks are Class "A" shares of the company
A Priori Probability
Probability calculated by logically examining existing information.
A Ton Of Money
A slang term used to describe a significant amount of money. The amount implied typically depends on the person, company or situation.
A-Share
In a family of multi-class mutual funds, this is the class that is characterized by a front load structure. Not all fund companies follow this class structure however, it is the prominent method of distinction
AAA
The highest rating given on bonds by bond rating agencies
Abandonment
1. The act of surrendering a claim to, or interest in, a particular asset.
2. The permitted withdrawal from a forward contract that is made for the purchase of deliverable securities.
3. The act of allowing an option to expire unexercised.
Abandonment Option
A clause granting parties the option of withdrawing from the contract before the fulfillment or completion of all contractual duties. This clause adds value by giving the parties the ability to end the obligation if it is unprofitable.
A type of "real option
Abandonment Value
The value of a project or asset if it were immediately liquidated.
Also referred to as the liquidation value.
Abatement
In general, a decrease in the amount of taxation faced by an individual or company
Abatement Cost
A cost borne by many businesses for the removal and/or reduction of an undesirable item that they have created. Abatement costs are generally incurred when corporations are required to reduce possible nuisances or negative byproducts created during production.
ABC Agreement
An agreement made between a purchasing member with a seat on the NYSE and the firm in which he or she works. With the approval of the NYSE, this agreement stipulates that the employee of the firm may:
a) transfer the seat to another employee of the firm
b) retain ownership and purchase a new seat for another individual designated by the firm
c) sell the seat and transfer any gains to the firm.
Ability to Pay
The principle that taxes should vary according to an individual's level of wealth or income.
Abnormal Return
When the return on an asset or security is in excess of the expected rate of return.
Above the Market
An order to buy or sell at a price set higher than the current market price of the security. Examples of above the market orders include: a limit order to sell, a stop order to buy, or a stop-limit order to buy
Above Water
The condition of an asset's actual value when it is greater than the asset's book value
Absolute Advantage
The ability of a country, individual, company, or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service.
Absolute Breadth Index - ABI
A market indicator used to determine volatility levels in the market without factoring in price direction. It is calculated by taking the absolute value of the difference between the number of advancing issues and the number of declining issues. Typically, large numbers suggest volatility is increasing which is likely to cause significant changes in stock prices in the coming weeks
Absolute Priority
The principle in bankruptcy proceedings that requires senior creditors to be fully paid before junior creditors and stockholders may receive any payment.
Also known as 'liquidation preference'
Absolute Rate
The fixed portion of an interest-rate swap, expressed as a percentage rather than as a premium or a discount to a reference rate.
Absolute Return
The return that an asset achieves over a period of time. This measure simply looks at the appreciation or depreciation (expressed as a percentage) that an asset - usually a stock or a mutual fund - faces over a period of time. Absolute return differs from relative return because it is concerned with the return of the asset being looked at and does not compare it to any other measure
Absorbed
1. In a general business sense, when a cost is treated as an expense instead of being passed on to the customer in the form of higher prices.
2. In underwriting, when an issue has been completely sold to the public.
3. In mergers, when an acquired firm is folded into the acquiring company.
Accelerated Cost Recovery System - ACRS
A system of depreciation introduced by the Economic Recovery Tax Act of 1981. ACRS depreciation is based on recovery periods instead of useful life. These periods were predetermined by the IRS.
Accelerated Depreciation
Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset.
Acceleration Covenant
A clause included in certain debt securities and swap agreements stating that the immediate collection of payment and termination of contract will take place should default or a downgrade of debt occur.
Accident And Health Benefits
Fringe benefits provided to employees for sickness, accidental injury, or accidental death. These benefits include payment of hospital and medical expenses as well as income payments.
Account
1. An arrangement by which an organization accepts a customer's financial assets and holds them on behalf of the customer at his or her discretion.
2. A statement summarizing the record of transactions in the form of credits, debits, accruals and adjustments that have occurred and have an affect on an asset, equity, liability or past, present or future revenue.
3. A relaying of happenings from one party to another.
Account Balance
The net of debits and credits for an account at the end of a reporting period.
Accountable Plan
A plan for reimbursing employees for business expenses. Under this plan, the reimbursement that the employee receives for the expenses is not included in his/her income. Employees are required to account adequately for expenses with records and return any excess reimbursement within a reasonable period of time.
Accountant
A professional person who performs accounting functions.
Accountant's Opinion
A statement signed by an independent accountant outlining his or her opinion regarding the quality of information contained in a company's financial reports and records
Accounting
To provide a record such as funds paid or received for a person or business. Accounting summarizes and submits this information in reports and statements. The reports are intended both for the firm itself and for outside parties.
Accounting Earnings
A company's earnings as reported in the income statement.
Accounting Method
In terms of taxation, the method by which income and expenses are determined for taxation purposes.
Accounting Noise
The effect of complex and extensive accounting rules that regulate financial statement reporting and are thought to distort a company's true operating performance
Accounting Period
1. In general, the time period reflected by a set of financial statements.
2. In terms of taxation, it is the 12-month period a taxpayer uses to determine his or her income tax.
Accounting Profit
A company's total earnings, calculated according to Generally Accepted Accounting Principles (GAAP), and includes the explicit costs of doing business, such as depreciation, interest and taxes.
Accounting Rate of Return - ARR
ARR provides a quick estimate of a project's worth over its useful life. ARR is derived by finding profits before taxes and interest
Accounts Payable - AP
An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable entry is found on a balance sheet under the heading current liabilities.
Accounts payable are often referred to as "payables".
Another common usage of AP refers to a business department or division that is responsible for making payments owed by the company to suppliers and other creditors.
Accounts Payable Turnover Ratio
A short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. Accounts payable turnover ratio is calculated by taking the total purchases made from suppliers and dividing it by the average accounts payable amount during the same period.
Accounts Receivable - AR
Money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for. Receivables usually come in the form of operating lines of credit and are usually due within a relatively short time period, ranging from a few days to a year.
On a public company's balance sheet, accounts receivable is often recorded as an asset because this represents a legal obligation for the customer to remit cash for its short-term debts
Accounts Receivable Financing
A type of asset-financing arrangement in which a company uses its receivables - which is money owed by customers - as collateral in a financing agreement. The company receives an amount that is equal to a reduced value of the receivables pledged. The age of the receivables have a large effect on the amount a company will receive. The older the receivables, the less the company can expect. Also referred to as "factoring".
Accredited Investor
A term used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by certain government filings.
Also known as "qualified purchaser
Accreting Principal Swap
A swap whereby the notional value is increasing over time.
Accretion
1. Asset growth through addition or expansion.
2. In reference to discount bonds, it describes the accumulation of value until maturity
Accretive Acquisition
An acquisition that will increase the acquiring company's EPS
Accrual Accounting
An accounting method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture of a company's current financial condition.
Accrual accounting is considered to be the standard accounting practice for most companies, with the exception of very small operations. This method provides a more accurate picture of the company's current condition, but its relative complexity makes it more expensive to implement. This is the opposite of cash accounting, which recognizes transactions only when there is an exchange of cash.
Accruals
Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense.
Accrued Expense
An accounting expense recognized in the books before it is paid for. It is a liability, usually current. These expenses are typically periodic and documented upon a company's balance sheet due to the high probability of collection.
Accrued Interest
The interest that has accumulated on a bond since the last interest payment up to, but not including, the settlement date.
There are two methods for calculating accrued interest:
1. 360-day year method, used for corporate and municipal bonds
2. 365-day year method, used for government bonds
Accrued Market Discount
The gain in the value of a discount bond expected from holding it for any duration until its maturity.
Accumulated Earnings Tax
A tax imposed by the federal government upon companies with retained earnings deemed to be unreasonable and in excess of what is considered ordinary.
Accumulation
1) In the context of individual investing, it is the process of contributing cash to invest in securities over a period of time in order to build a portfolio of desired value. Dividends and capital gains are also reinvested during this process.
2) In institutional investing, it is the action of a large investor buying up many shares of a public company over an extended period of time.
3) In corporate finance, the retention of company profits for reinvestment in business operations, as opposed to the payout of earnings as dividends to shareholders.
Accumulation Phase
1. A period of time when an annuity investor is in the early stages of building up the cash value of the annuity. This is followed by the annuitization phase where payments are paid out to the annuitant.
2. The period of time when an investor builds up the value of their investment through savings.
Accumulation Plan
1) A general financial strategy in which an investor attempts to build the value of their portfolio to a desired size.
2) In the context of mutual funds, a formal arrangement in which the investor contributes a specified amount of money to the fund on a periodic basis. By doing so, the investor accumulates a larger and larger investment in the fund through their contributions and the growth of the fund itself
Accumulation Unit
1) In the case of a variable annuity, a measurement of the value invested in the account during the accumulation period of the contract. The more funds you contribute to your annuity account, the more accumulation units you will build.
2) In the case of a unit trust, a type of investment structure where the trust's income is directly reinvested into the trust, instead of being paid out as cash to the investor.
Accumulation/Distribution
A momentum indicator which tries to gauge supply and demand by discovering if investors are generally "Accumulating" (buying) or "Distributing" (Selling) a certain stock by identifying divergences between stock price and volume flow. It is calculated using the following formula:
Acc/Dist = ((Close - Low) - (High - Close)) / (High - Low) * Period's volume
Accumulation/Distribution (Acc/DisTM) Rating
Exclusive rating in Investor's Business Daily. One of the IBD SmartSelect® Corporate Ratings, it tracks the relative degree of institutional buying (accumulation) and selling (distribution) in a particular stock over the last 13 weeks. Updated daily, stocks are rated on an A+ to E scale.
A = Heavy buying
B = Moderate buying
C = Equal amount of buying and selling
D = Moderate selling
E = Heavy selling
The rating is enhanced by "+" and "-" signs to show additional detail on institutional activity; a "B+" indicates greater accumulation than a "B" rating, whereas a "B-" indicates less accumulation than a "B" rating, and so on.
Acid-Test Ratio
A stringent test that indicates whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets.
Calculated by:
Acquisition
When one company purchases a majority interest in the acquired
Acquisition Debt
Debt incurred to construct, improve or acquire a principal or secondary residence
Acquisition Fee
Charges and commissions paid out for the selection or purchase of property. Some examples are real estate commission, acquisition expense, and development/construction fees.
Acquisition Premium
The difference between the actual cost for acquiring a target firm versus the estimate made of its value before the acquisition
Across The Board
A market-wide directional movement. In other words, a market condition in which most stocks and sectors are moving in the same direction. These movements are usually caused by market-wide events.
Act of God Bond
A bond issued by an insurance company, linking principal and interest to the company's losses due to natural disasters
Active Bond
A term used to describe fixed-income securities that trade frequently on the floor of the NYSE.
Active Bond Crowd
The name given to members of the NYSE and their specific bond trading departments that are acknowledged as frequent traders in active bonds.
Active Box
This refers to the physical location in a brokerage where securities are kept
Active Income
Income for which services have been performed. This includes wages, tips, salaries, commissions and income from businesses in which there is material participation.
Active Investing
An investment strategy involving ongoing buying and selling actions of the investor. Active investors will purchase investments and continuously monitor their activity in order to exploit profitable conditions
Active Management
An investing strategy that seeks returns in excess of a specified benchmark.
Active-Participant Status
Active-participant status is a reference to an individual's participation in an employer sponsored retirement plan. The plans which qualify include:
1.Qualified plans, such as profit sharing plans, defined benefit plans, money purchase pension or target benefit plans and 401(k) plans
2. SEP IRAs
3. SIMPLE IRAs
4. 403(b) plans
5. Qualified annuity plans
6. Employee Funded Pension Trusts (created before June 25, 1959)
7. A plan established for its employees by the United States, by a State or political subdivision of the United States, or by an agency or instrumentality of the United States or any of its subdivisions
Activities of Daily Living - ADL
Routine activities that people tend do everyday without needing assistance. There are six basic ADLs: eating, bathing, dressing, toileting, transferring (walking) and continence. An individual's ability to perform ADLs is important for determining what type of long-term care (e.g. nursing-home care or home care) and coverage the individual needs (i.e. Medicare, Medicaid or long-term care insurance
Activity Based Budgeting - ABB
A method of budgeting in which activities that incur costs in each function of an organization are established and relationships are defined between activities. This information is then used to decide how much resource should be allocated to each activity.
Activity Based Management - ABM
Using an activity-based costing system to improve the operations of an organization.
Activity Ratio
Accounting ratios that measure a firm's ability to convert different accounts within their balance sheets into cash or sales
Actual Return
The actual gain or loss of an investor. This can be expressed in the following formula: expected return (ex-ante) plus the effect of firm-specific and economy-wide news.
Actuals
1. A term used to describe the underlying in future and forward contracts, dealing with commodities rather than financial instruments.
2. A term used to describe a securities historical volatitity.
Actuarial Analysis
The analysis of an investment's risk done by an actuary.
Actuarial Risk
The risk that the assumptions that actuaries implement into a model to price a specific insurance policy may turn out wrong or somewhat inaccurate.
Possible assumptions include the frequency of losses, severity of losses and the correlation of losses between contracts.
Also known as "insurance risk".
Actuary
A professional statistician working for an insurance company. They evaluate your application and medical records to project how long you will live.
Ad Valorem Tax
A tax based on the assessed value of real estate or personal property. In other words, ad valorem taxes can be property tax or even duty on imported items. Property ad valorem taxes are the major source of revenues for state and municipal governments
Adaptive Expectations Hypothesis
A hypothesis stating that individuals make investment decisions based on the direction of recent historical data, such as past inflation rates, and adjust the data (based on their expectations) to predict future rates.
Add-On Certificate of Deposit
A certificate of deposit that allows the bearer to deposit additional funds, after the initial purchase date, that will bear the same rate of interest.
Adding To A Loser
The action of a trader/investor increasing a position in an asset when its price is heading in the direction that's opposite to what the investor/trader desires. This is generally not a wise investment decision because unless the asset begins to move in the desired direction, the investor's losses will increase
ADF
In currencies, this is the abbreviation for the Andorran Franc
Adjustable-Rate Mortgage - ARM
A mortgage that allows adjustments of the loan interest rate at pre-specified regular intervals.
Adjustable-Rate Preferred Stock - ARPS
A type of preferred stock where the dividends issued will vary with a benchmark, most often a T-bill rate. The value of the dividend from the preferred share is set by a predetermined formula to move with rates, and because of this flexibility preferred prices are often more stable then fixed-rate preferred stocks.
Adjusted Balance Method
A finance/accounting method where costs are based on the amount(s) owing at the end of the current time period (once credits and payments are posted).
Adjusted Basis
The proportionate value of an asset or security that reflects any deductions taken on, or capital improvements to the asset or security
Adjusted Cost Base - ACB
An income tax term that refers to the change in an asset's book value resulting from improvements, new purchases, sales, payouts, or other factors.
Adjusted Debit Balance
The amount of money owed by a customer to his/her broker after paper profits and losses are taken into consideration.
Adjusted Exercise Price
1. An option's strike price after adjustments have been made for stock splits to its underlying security.
2. A term used to describe the strike prices for options written on Ginnie Mae pass through certificates.
Adjusted Funds From Operations - AFFO
A financial performance measure primarily used in the analysis of real-estate income trusts (REITs). The AFFO of a REIT, though subject to varying methods of computation, is generally equal to the trust's funds from operations (FFO) with adjustments made for recurring capital expenditures used to maintain the quality of the REIT's underlying assets. The calculation takes in the adjustment to GAAP straight-lining of rent, leasing costs and other material factors.
Adjusted Gross Income - AGI
Used to determine how much of your income is taxable. AGI consists of gross income from taxable sources minus your maximum allowable adjustments
Adjusted Present Value - APV
The Net Present Value (NPV) of a project if financed solely by equity plus the Present Value (PV) of any financing benefits (the additional effects of debt).
Adjustment Bond
Issued by a corporation during a restructuring phase, an adjustment bond is given to the bondholders of an outstanding bond issue prior to the restructuring. The debt obligation is consolidated and transferred from the outstanding bond issue to the adjustment bond. This is effectively a recapitalization of the company's outstanding debt obligations, which is accomplished by adjusting the terms (such as interest rates and lengths to maturity) to increase the likelihood that the company will be able to meet its obligations
Adjustment Frequency
How often the interest rate changes or resets on an adjustable-rate mortgage. Different adjustable-rate mortgages have different adjustment frequencies. Typically, the adjustment frequency is once a year, but it can be as often as once a month or as infrequent as once every five years
Adjustment in Conversion Terms
A term used to describe the adjustment made to a convertible securities' conversion factor when the exchangeable stock underlying the convertible undergoes a split
Adjustment Index
A modification made to a piece of numerical data, or a set of numerical data, by a product of some type of a mathematical formula. There are a number of different types of adjustment indices, ranging in scale and purpose from mortgage rate adjustment to handicapping a golfer's score
Administrator
1. A person empowered by a court to act for another person who is deemed incapable of acting for himself/herself.
2. Under the Uniform Securities Act, an entity that enforces the rules and regulations, including registration requirements and post-registration requirements, of investment advisory professionals.
Adoption Credit
A per-child tax credit for adopting a child under 18.
ADV Form
A form that is kept on file with the Securities & Exchange Commission that contains critical financial information about a registered investment advisor (RIA).
Advance Directive
A document expressing a person's wishes about critical care when he or she is unable to decide for him or herself. However, it does not authorize anyone to act on a person's behalf or make decisions the way a power of attorney would
Advance Rate
A percentage of collateral that determines the loan amount that a lender will issue a company.
Advance Refunding
1. A bond issuance used to pay off another outstanding bond. The new bond will often be issued at a lower rate than the older outstanding bond.
2. A bond issuance in which new bonds are sold at a lower rate than outstanding ones. The proceeds are then invested, and when the older bonds become callable they are paid off with the invested proceeds.
Advance/Decline Index
A technical analysis tool that represents the total difference between the number of advancing and declining security prices. This index is considered one of the best indicators of market movements as a whole. Stock indexes such as the Dow Jones Industrial Average only tell us the strength of 30 stocks, whereas the advance/decline index can provide much more insight into the movements of the market.
Advance/Decline Line - A/D
A technical indicator that plots changes in the value of the advance-decline index over a certain time period. Each point on the chart is calculated by taking the difference between the number of advancing/declining issues and adding the result to the previous period's value, as shown by the following formula:
A/D Line = (# of Advancing Stocks - # of Declining Stocks) + Previous Period's A/D Line Value
Adverse Opinion
A professional opinion made by an auditor indicating that a company's financial statements are misrepresented, misstated, and do not accurately reflect its financial performance and health.
Adverse Selection
1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance.
2. A situation where sellers have information that buyers don't (or vice versa) about some aspect of product quality.
Advisor
A person or company responsible for making investments on behalf of, and/or providing advice to, investors.
AED
In currencies, this is the abbreviation for the U.A.E. Dirham
AFA
In currencies, this is the abbreviation for the Afghanistan Afghani
Affiliate
A type of inter-company relationship in which one of the companies owns less than a majority of the other company's stock, or a type of inter-company relationship in which at least two different companies are subsidiaries of a larger company.
Affiliated Companies
A situation that occurs when one company owns a minority interest (less than 50%) in another company.
Also refers to companies that are related to each other in some way.
Affiliated Person
An individual who is in a position to influence the actions of a corporation. This includes people such as directors, executives, and owners.
Affinity Fraud
A type of investment scam in which a con artist targets members of an identifiable group based on things such as race, age, religion, etc. The fraudster either is, or pretends to be, a member of the group. Often the fraudster will be promoting a ponzi or pyramid scheme.
Affirmative Obligation
An obligation of NYSE specialists to enter the market on a particular security (either by posting or bidding and ask) when there is not sufficient market demand and supply to efficiently match orders
After Tax Operating Income - ATOI
A company's total operating income after taxes. This non-GAAP measure excludes any after-tax benefits or charges such as effects from accounting changes.
After The Bell
After the close of the stock market
After-Acquired Clause
A provision included in legal contracts ensuring that subsequent acquisitions of assets will be included in the debtors liability to the lender.
After-Hours Market Close
The last transaction and final price of a security that is traded in the after-hours market. The after-hours market is generally more volatile than the regular market, but it can give investors an idea of what to expect at the start of trading the next day.
Also referred to as "after-hours close
After-Hours Trading - AHT
Trading after regular trading hours on the major exchanges.
Also known as the "after-hours market".
After-Tax Profit Margin
A financial performance ratio, calculated by dividing net income after taxes by net sales. A company's after-tax profit margin is important because it tells investors the percentage of money a company actually earns per dollar of sales. This ratio is interpreted in the same way as profit margin - the after-tax profit margin is simply more stringent because it takes taxes into account.
Against Actual
A transaction generally used by two hedgers who want to exchange futures for cash positions.
Aged Fail
A fail that has occurred between two or more parties to a securities transactions and has lasted for over 30 days
Agency Bond
A bond issued by a government-sponsored agency. These bonds carry an AAA credit rating from Standard & Poor’s (the highest).
Agency Costs
The costs resulting from an agent performing services for a principal.
Agency Cross
A trade that has only one agent acting for the buyer and seller.
Also known as Dual Agency
Agency Problem
A conflict of interest arising between creditors, shareholders and management because of differing goals.
Agency Security
Low risk debt obligations issued by enterprises that the U.S. Government sponsors
Agency Theory
A theory concerning the relationship between a principal (shareholder) and an agent of the principal (company's managers).
Agent
1. An individual or firm that places securities transactions for clients.
2. A person licensed by a state to sell insurance.
3. A securities salesperson who represents a broker-dealer or issuer when selling or trying to sell securities to the investing public.
Aggregate Demand
The total amount of goods and services demanded in the economy at a given overall price level and in a given time period. It is represented by the aggregate-demand curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally there is a negative relationship between aggregate demand and the price level. Also known as "total spending".
Aggregate Exercise Price
The strike price of a put or call option multiplied by its contract size. Aggregate exercise prices are used to determine the dollar amount required should the option be exercised.
Aggregation
1. Used in corporate financial planning, aggregation is a process whereby a number of a firm's smaller projects are combined and treated as an individual project.
2. Used in futures markets, aggregation is a principal involving the combination of all future positions owned or controlled by a single trader or group of traders.
Aggregate Supply
The total supply of goods and services produced within an economy at a given overall price level in a given time period. It is represented by the aggregate-supply curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally, there is a positive relationship between aggregate supply and the price level. Rising prices are usually signals for businesses to expand production to meet a higher level of aggregate demand. Also known as "total output".
Aggressive Accounting
The practice of inappropriately misconstruing income statements for the purpose of pleasing investors and inflating stock prices.
Aggressive Growth Fund
A mutual fund that attempts to achieve the highest capital gains. Investments held in these funds are companies that demonstrate high growth potential, usually accompanied by a lot of share price volatility. These funds are only for non risk-averse investors willing to accept a high risk-return trade-off.
Also commonly referred to as a "capital appreciation fund" or "maximum capital gains fund".
Aggressive Growth Funds
A mutual fund that invests in small or emerging growth companies which seeks rapid growth of capital. Some may be heavily focused in one sector (i.e.-technology
Aggressive Investment Strategy
A method of portfolio management and asset allocation that attempts to achieve maximum return
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