BEAR: A person who believes that the price of a particular security or the market as a whole will go lower.

Transcription

1 Trading Terms

2 ARBITRAGE: The simultaneous purchase and sale of identical or equivalent financial instruments in order to benefit from a discrepancy in their price relationship. More generally, it refers to an opportunity to make risk-free returns that are greater than the risk-free rate of return. ASK or OFFER: The price of a stock or option at which a seller is offering to sell a security, that is, the price that investor may purchase a stock or option. BASIS POINT: A.01% tick on a 1.00% scale used to describe the yields of interest rates or interest rate products. For example, when the U.S. Fed raises the discount rate 25 basis points, the discount rate goes from 5.00% to 5.25%. BEAR: A person who believes that the price of a particular security or the market as a whole will go lower. BEARISH: The outlook of a person anticipating lower prices in a particular security or the market as a whole. BEAR MARKET: Any market in which prices are trending lower BETA: A measure of the return (in percentage terms) on a stock relative to the return (in percentage terms) of an index. BID: The price of a stock or option at which a buyer is willing to purchase a security; the price at which a client may sell a security. Trading terms 1

3 BID/ASK (OFFER) SPREAD: The di rence between the bid and ask prices for a particular stock or option. BOND: A debt instrument or promissory note of a corporation, municipality, or the U.S. Government. BROKER: A broker is an individual or firm that charges a fee or commission for executing, either on the oor of an exchange or electronically, buy, sell, or spread orders submitted by a client or firm. BULL: A person who believes that the price of a particular security or the market as a whole will go higher. BULLISH: The outlook of a person anticipating higher prices in a particular security or the market as a whole. BULL MARKET: Any market in which prices are trending higher CANCELED ORDER: An order to buy or sell stock or options that is canceled before it has been executed CASH ACCOUNT: An account in which all positions must be paid for in full CHICAGO BOARD OF TRADE (CBOT): Founded in 1848 with 82 original members, today the CBOT is the one of the largest futures and options exchanges in the world. It is known for its grain and U.S. Treasury Bond futures. Futures and futures options are traded at the CBOT. Trading terms 2

4 CHICAGO MERCANTILE EXCHANGE (CME): Originally formed in 1874 as the Chicago Produce Exchange, where products such as butter, eggs, and poultry were traded, the CME is now one of the biggest futures and options exchanges in the world. The CME trades futures on stock indices, foreign currencies, livestock, and Eurodollars. Futures and futures options are traded at the CME. CLIENT: Any person or entity that opens a trading account with a broker-dealer CLIENT STATEMENT: This document displays a client's trading activity, positions and account balance. CLOSING PRICE: The price of a stock or option at the last transaction of the day. COMMISSION: The one time fee charged by a broker to a client when the client executes a stock or option trade through the brokerage firm CONTRACT SIZE: The number of shares of the underlying stock that an options contract would deliver if exercised. CONTINGENCY ORDER: When you place a stock or options order you can choose to place contingencies on that order, meaning that the order will be filled only when a specific event has occurred CORRECTION: A temporary reversal of direction of the overall trend of a particular stock or the market in general CURRENT MARKET VALUE (CMV): The current worth of the securities in an account. The market value of listed securities is based on the closing prices on the previous business day Trading terms 3

5 DAY TRADING: Buying and selling the same stock or option position in one day's trading session, thus ending the day with no position. DIVIDEND: A payment made by a company to its existing shareholders. Dividends are usually cash payments made on a quarterly basis. Dividends can also be in the form of additional shares of stock or property. DOWNTREND: Successive downward price movements in a security over time EQUITY: Equity can have several meanings, including 1) stock, as it represents ownership in a corporation, or 2) in a margin account, equity represents a client's ownership in his account EXCHANGE: An association of persons (members) who participate in buying and selling securities. It also refers to the physical location where the buying and selling takes place. EXECUTION: The actual completion of an order to buy or sell stock or options. FEDERAL OPEN MARKET COMMITTEE (FOMC): A committee of the Federal Reserve Board which operates by buying and selling government securities in the open market. This buying and selling is how the Federal Reserve Board controls the U.S. money supply. The FOMC decides whether to change the discount rate or not. FEDERAL RESERVE BOARD (FRB): A seven-member board of governors of the Federal Reserve System, appointed by the U.S. President and confirmed by the Senate, that is responsible for monetary policy within the United States. It controls the supply of money and credit to try to control inflation and create a stable, growing economy. Trading terms 4

6 FUNDAMENTALS: Factors that are used to analyze a company and its potential for success, such as earnings, revenues, cash flow, debt level, financial ratios, etc. FUTURE(S) CONTRACT: A forward contract for the future delivery of a financial instrument (ex. Treasury bond) or physical commodities (corn), traded on a futures exchange (ex. CBOT, CME). GOOD- - TILCANCELED (GTC): A type of limit order that is active until it is filled or canceled. As opposed to a day order, a GTC order can remain active for an indefinite number of trading sessions INDEX: A proxy for the overall stock market or segments of the stock market. An index is typically made up of a group of stocks that are selected to represent all stocks in the stock market or market segment (such as technology stocks or big capitalization stocks). The performance of the index gives an idea of how individual stocks might be performing. The S&P 500 (Standard & Poor's 500) and Dow Jones Industrial Average are two well-known indices INITIAL MARGIN REQUIREMENT: The amount of equity a client must deposit when making a new purchase in a margin account. INITIAL PUBLIC OFFERING (IPO): A corporation's first sale of stock to the public. INSTITUTIONAL INVESTORS: Organizations such as mutual funds, pension funds, endowment funds, and insurance companies that typically have very large sums of money to invest. INTEREST: Money paid when borrowing money or money earned when lending money. INTEREST RATE: A percentage that is charged when borrowing money, or that is earned when lending money Trading terms 5

7 INVESTOR: Someone who purchases a stock with the intent of holding it for a some amount of time and profiting from the transaction. Compare to day trading. JOINT ACCOUNT: An account that has two or more owners who possess some form of control over the account and these individuals may transact business in the account JUNK BOND (HIGH - YIELD BOND): A bond with a credit rating of BB or lower, carrying higher risk of default than investment grade bonds. LEVERAGE: The ability to control of a larger amount of money or assets with a smaller amount of money or assets, typically done by borrowing money or using options. If prices move favorably for a leveraged position, the profits can be larger than on an unleveraged position. However, if prices move against a leveraged position, the losses can also be larger than on an unleveraged position LIMIT (PRICE) ORDER: An order that has a limit on either price or time of execution, or both LIMITED TRADING AUTHORIZATION: This authorization, usually provided by a limited power of attorney, grants someone other than the client to have trading privileges in an account LIQUIDATION: A transaction or transactions that offsets or closes out a stock or options position. LIQUIDITY: The ease with which a transaction in stock or options can take place without substantially affecting their price LONG: As a noun, it refers to people who have bought stock or options. As an adjective, it refers to a position of long stock or options. Compare to short Trading terms 6

8 LOT: Contract MAINTENANCE MARGIN: An amount of cash or margin-eligible securities that must be maintained on deposit in a client's account to maintain a particular position. MARGIN: The amount of equity contributed by a client (in the form of cash or margin-eligible securities) as a percentage of the current market value of the stocks or option positions held in the client's margin account. MARGIN ACCOUNT: An account that allows a client to borrow money from a brokerage firm against cash and margin-eligible securities held in the client's margin account at that brokerage firm. MARGIN CALL: A brokerage firm's demand of a client for additional equity in order to bring margin deposits up to a required minimum level. If the client fails to deliver more equity in the account, the client's positions may be liquidated. MARGIN REQUIREMENT: The minimum equity required in an account to initiate or maintain a position in stock or options MARKET MAKER: A term for a trader at the CBOE or PCX who trades for his own account. They compete with each other to provide the best bid and ask prices for options to the public. MARK -TO - MARKET: The daily updating of the value of stocks and options to re account ct profits and losses in a margin NET POSITION: The di option. rence between a client's open long and open short positions in any one stock or Trading terms 7

9 NEW YORK STOCK EXCHANGE (NYSE): Founded in 1792, it is the oldest and largest stock exchange in the United States. Options are not traded on the NYSE. OFFER: Another name for the ask price. The price of a stock or option at which a seller is offering to sell. ONE CANCELS OTHER (OCO): Two orders submitted simultaneously by one client, where if one order is filled, the other is canceled immediately. OPEN EQUITY: The value of all open positions in stock and options, less the margin requirements of those positions. OPTION: A call or a put, an option is a contract that entitles the buyer to buy (in the case of a call) or sell (in the case of a put) a number of shares of stock at a predetermined price (strike price) on or before a fixed expiration date ORDER: An instruction to purchase or sell stock or options. POINT: The minimum change in the handle of a stock or option price. For stock or options in the U.S., a point means $1. If the price of an option goes from $2.00 to $7.00, it has risen 5 points. PROFIT/LOSS (P/L) DAY: P/L Day is the amount of money made or lost on your position from last night's close to the current mark plus any intra-day profit and loss Trading terms 8

10 PROFIT/LOSS (P/L) OPEN: P/L Open is the amount of money made or lost on your position the inception of the trade. You can see execution price for any stock or option in your position by going to the Monitor tab and left clicking on the P/L Open dollar amount. QUOTE: The bid to buy and the offer to sell a particular stock or option at a given time RALLY: A rise in the price of a stock or the market as a whole. Compare to reaction. RANGE: The high and low prices of a stock or option recorded during a specified time REALIZED GAINS OR LOSSES: The profit or loss incurred in an account when a closing trade on a stock or option is made and matched with an open position in the same stock or option. REVERSAL (MARKET REVERSAL): When a stock's direction of price movement stops and heads in the opposite direction. ROUND LOT: A standard quantity of trading. For example, in U.S. equities, a round lot is 100 shares of stock. SCALP: A quick entry and exit on a position SECONDARY MARKET: Markets in which securities are bought and sold subsequent to their being sold to the public for the first time. SEGREGATION: The holding of client-owned securities separate from securities owned by other clients and securities by the brokerage firm. Trading terms 9

11 SETTLEMENT: The conclusion of a stock or options trade through the transfer of the security (from the seller) or cash (from the buyer). SHARES: Stock. SHORT: As a noun, it refers to people who have sold stock or options without owning them first. As an adjective, it refers to a position of short stock or options. Compare to long. SINGLE ACCOUNT: An account type in which only one individual has control over the investments and may transact business. SPECULATOR: Someone who buys or sells stocks or options hoping to profit from favorable moves in their price or volatility. Generally, a speculator does not hedge his positions. SPLIT: An action taken by a corporation in which the number of outstanding shares is increased and the price per share decreases. SPREAD: 1) a position or order involving two or more different options or stock and options (see leg), or 2) the difference between the bid and offer prices of a stock or option. SPX: SPX is the symbol for the Standard & Poor's 500 cash index STATEMENT: A summary of a brokerage account's activity and balances. Trading terms 10

12 STOCK: Another name for equity, it is a security that represents ownership in a corporation. STOP (STOP LOSS) ORDER: A type of order that turns into a market order to buy or sell stock or options when and if a specified "stop" price is reached SYSTEMATIC RISK: The broad macroeconomic factors that affect all companies in a stock market. It is also known as market risk. TECHNICAL ANALYSIS: Calculations that use stock price and volume data to identify patterns helping to predict future stock movements. Some technical analysis tools include moving averages, oscillators, and trendlines. TICK: The smallest possible price increment for a stock or option. TICKER: The telegraphic system which prints or displays last sale prices and volume of securities transactions on exchanges on a moving tape within a minute after each trade. Also known as the "tape". TRADING AUTHORIZATION: Written permission from the owner of an account authorizing another person to enter trades on behalf of the owner. Also called Power of Attorney. TRADING FLOOR: The part of an exchange where the stocks and options are actually bought and sold. TREND: Either an uptrend or a downtrend, successive price movements in the same direction in a security over time Trading terms 11

13 UPTREND: Successive upward price movements in a security over time VIX (VOLATILITY INDEX): Created by the CBOE, the VIX is an index of volatility calculated from the extrinsic value of out of the money SPX index options. VOLATILITY: Generically, volatility is the size of the changes in the price of the underlying security. In practice, volatility is presented as either historical or implied. VOLUME: The total number of shares of stock or option contracts traded on a given day Trading terms 12