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Financial Terms Glossary

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Above Par
A term used to describe the price of a security when it is trading above its face value. A security usually trades at above par when its income distributions are higher than those of other instruments currently available in the market.
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.
ABX Index
A financial benchmark that measures the overall value of mortgages made to borrowers with subprime or weak credit. The ABX index uses credit default swap contracts to come up with an overall value and is made up of 20 bonds that is comprised of groups of subprime mortgages. Using this index, financial institutions are able to determine if the market for these securities are improving or worsening.
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 any number of clauses being violated by the borrower including default or a downgrade of debt. Also referred to as "acceleration clause."
Asset
A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. An asset is also a balance sheet item representing what a firm owns.
Balance of Payments (BoP)
A record of all transactions made between one particular country and all other countries during a specified period of time. BOP compares the dollar difference of the amount of exports and imports, including all financial exports and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa.
Balance Sheet
A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.
Bearish
Believing that a particular security, a sector, or the overall market is about to fall. In a secular bear market, the prevailing trend is "bearish," or downward-moving.
Below Par
A term describing a bond whose price is below the face value or principal value.
Broker-Dealer
A person or firm in the business of buying and selling securities, operating as both a broker and a dealer, depending on the transaction. The term broker-dealer is used in U.S. securities regulation parlance to describe stock brokerages, because most of them act as both agents and principals. A brokerage acts as a broker (or agent) when it executes orders on behalf of clients, whereas it acts as a dealer (or principal) when it trades for its own account.
CAC 40
A benchmark French stock market index. The index represents a capitalization-weighted measure of the 40 most significant values among the 100 highest market caps on the Paris Bourse (now Euronext Paris).
Call
An option contract giving the owner the right (but not the obligation) to buy a specified amount of an underlying security at a specified price within a specified time.
Capital
In general, it refers to financial resources available for use.
Clearing House
An agency or separate corporation of a futures exchange responsible for settling trading accounts, clearing trades, collecting, and maintaining margin monies, regulating delivery and reporting trading data. Clearing houses act as third parties to all futures and options contracts - as a buyer to every clearing member seller and a seller to every clearing member buyer.
Common Stock
A security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the bottom of the priority ladder for ownership structure. In the event of liquidation, common shareholders have rights to a company's assets only after bondholders; preferred shareholders and other debt holders have been paid in full.
Current Asset
is an asset which can either be converted to cash or used to pay current liabilities within 12 months. Typical current assets include cash, cash equivalents, short-term investments, accounts receivable, stock inventory and the portion of prepaid liabilities which will be paid within a year.
DAX
The DAX (Deutscher Aktien IndeX (German stock index)) is a blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange.
Dealer
An individual or firm willing to buy or sell securities for their own account.
Debt Instrument
A paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract. Types of debt instruments include notes, bonds, certificates, mortgages, leases, or other agreements between a lender and a borrower.
Dilution
A reduction in the ownership percentage of a share of stock caused by the issuance of new stock. Dilution can also occur when holders of stock options (such as company employees) or holders of other optionable securities exercise their options. When the number of shares outstanding increases, each existing stockholder will own a smaller, or diluted, percentage of the company, making each share less valuable. Dilution also reduces the value of existing shares by reducing the stock's earnings per share.
Dividend
A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share).
Earnings
The amount of profit that a company produces during a specific period, which is usually defined as a quarter (three calendar months) or a year. Earnings typically refer to after-tax net income. Ultimately, a business's earnings are the main determinant of its share price, because earnings and the circumstances relating to them can indicate whether the business will be profitable and successful in the long run.
EBIT
All profits before taking into account interest payments and income taxes.
Endorsement
A legal term that refers to the signing of a document which allows for the legal transfer of a negotiable from one party to another.
Euronext
As of 2008, NYSE Euronext manages a variety of exchanges, located in six countries. The company operates the world's most liquid exchange group, with nearly 4,000 listed companies, which represents a total market capitalization of approximately $30.5 trillion.
Expense
The economic costs that a business incurs through its operations to earn revenue. In order to maximize profits, businesses must attempt to reduce expenses without also cutting into revenues. Because expenses are such an important indicator of a business's operations, there are specific accounting rules on expense recognition.
Face Value
The nominal value or dollar value of a security stated by the issuer. For stocks, it is the original cost of the stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity (generally $1,000). Also known as "par value" or simply "par."
Fair Value
The estimated value of all assets and liabilities of an acquired company used to consolidate the financial statements of both companies.
Fixed Exchange Rate
A country's exchange rate regime under which the government or central bank ties the official exchange rate to another country's currency (or the price of gold). The purpose of a fixed exchange rate system is to maintain a country's currency value within a very narrow band.
Float
The total number of shares publicly owned and available for trading. The float is calculated by subtracting restricted shares from outstanding shares.
Full Stock
A stock with a par value of $100 per share. A full stock issue can be either a preferred share or common share. A full stock share would imply that a stock does not trade openly in public market, and thus its value is derived from its value relative to par, which in most cases would be $100. A stock's par value however is completely arbitrary and can be set at any level.
Gain
An increase in the value of an asset or property. A gain arises if the selling or disposition price of the asset is higher than the original purchase or acquisition price.
General Partnership
A arrangement by which partners conducting a business jointly have unlimited liability, which means their personal assets are liable to the partnership's obligations.
Gini Index
A measurement of the income distribution of a country's residents. This number, which ranges between 0 and 1 and is based on residents' net income, helps define the gap between the rich and the poor, with 0 representing perfect equality and 1 representing perfect inequality.
Global Fund
A type of mutual fund, closed-end fund or exchange-traded fund that can invest in companies located anywhere in the world, including the investor's own country. These funds provide more global opportunities for diversification and act as a hedge against inflation and currency risks.
Gorilla
A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing and availability of its products, relative to its competitors in the industry. This often forces competitors to resort to other tactics to compete, such as clever marketing or differentiating their offerings.
Half Stock
Stock sold with a par value half of what is considered standard. Half stock can be either common or preferred and, other than the reduced par value, acts as a regular share of stock.
Hard Currency
A currency, usually from a highly industrialized country, that is widely accepted around the world as a form of payment for goods and services. A hard currency is expected to remain relatively stable through a short period of time, and to be highly liquid in the forex market.
High Close
A tactic used by stock manipulators; they make small trades at high prices during the final minutes of trading to give the impression that the stock did very well.
High Flier
A stock that has seen its share price - and subsequently its valuation - rise to high multiples on metrics such as current earnings and current sales.
Honesty Bond
A bond posted by an organization or professional insuring the honesty and integrity of the bond issuer and/or its employees. An honesty bond insures the policy holder against theft, fraud and other dishonest acts by employees.
In-House
Conducting an activity or operation within a company, instead of relying on outsourcing. A firm uses its own employees and time to keep a division or business activity, such as financing or brokering, in-house.
Income Stock
An equity security that pays regular, often steadily increasing dividends, and offers a high yield that may generate the majority of overall returns.
Index
A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value.
Initial Public Offering (IPO)
The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded.
Investment Fund
A supply of capital belonging to numerous investors that is used to collectively purchase securities while each investor retains ownership and control of his or her own shares. An investment fund provides a broader selection of investment opportunities, greater management expertise and lower investment fees than investors might be able to obtain on their own. Types of investment funds include mutual funds, exchange traded funds, money market funds and hedge funds.
Joint Bond
A bond that is guaranteed by a party other than the issuer. A joint bond is an issue which is essentially a liability to multiple parties. These parties may be both corporate entities or government agencies.
Joint Venture
A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses, and costs associated with it.
Jointly and Severally
A legal term describing a partnership in which individual decisions are bound to all parties involved and thus undivided.
Junior Security
A security that ranks lower than other securities in regards to the owner's claims on assets and income in the event of the issuer becoming insolvent.
Junk Bond
A colloquial term for a high-yield or non-investment grade bond. Junk bonds are fixed-income instruments that carry a rating of 'BB' or lower by Standard & Poor's, or 'Ba' or below by Moody's. Junk bonds are so called because of their higher default risk in relation to investment-grade bonds.
K-Ratio
A ratio that is used in the performance evaluation of an equity relative to its risk. The ratio examines the consistency of an equity's return over time.
Key Currency
The currency used as a reference in an international transaction or when setting an exchange rate. The key currency used is usually issued by a stable, developed country such as the United States. Central banks also hold key currencies in reserve (reserve currency).
Leading Indicator
A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators are used to predict changes in the economy, but are not always accurate.
Ledger Balance
The balance of a customer account as shown on the bank statement. The ledger balance is found by subtracting the total number of debits from the total number of credits for a given accounting period. The ledger balance is used solely in the reconciliation of book balances.
Lifetime Cap
The maximum interest rate on an adjustable-rate mortgage (ARM) that may be charged at any point over the life of the mortgage. The lifetime cap is usually expressed as a percentage increase from an initial interest rate.
Market
A medium that allows buyers and sellers of a specific good or service to interact in order to facilitate an exchange. The price that individuals pay during the transaction may be determined by a number of factors, but price is often determined by the forces of supply and demand.
Market Capitalization
The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
Market Maker
A broker-dealer firm that accepts the risk of holding a certain number of shares of a particular security in order to facilitate trading in that security. Each market maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares.
Minority IPO
An initial public offering in which a parent company spins off one of its subsidiaries or divisions, but retains a majority stake in the company after issuance. This means that after the public offering, the parent company will still have a controlling stake of the new public company.
Monetize
To monetize is to convert an asset into or establish something as money or legal tender.
NASDAQ
A global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks.
NASDAQ 100
An index composed of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange. This index includes companies from a broad range of industries with the exception of those that operate in the financial industry, such as banks and investment companies.
Nikkei
Short for Japan's Nikkei 225 Stock Average, the leading and most-respected index of Japanese stocks. It is a price-weighted index comprised of Japan's top 225 blue-chip companies on the Tokyo Stock Exchange.
Nominal Interest Rate
Nominal interest rate refers to the rate of interest prior to taking inflation into account. Depending on its application, an inflation and risk premium must be added to the real interest rate in order to obtain the nominal rate.
Nonforfeiture Clause
A clause in an insurance policy that allows for the insured to receive all or a portion of the benefits or a partial refund on the premiums paid if the insured misses premium payments, causing the policy to lapse. The nonforfeiture clause may only be in effect for a limited period of time, and may only kick in after the policy has been active for several years.
NYSE Composite Index
An index that measures the performance of all stocks listed on the New York Stock Exchange. The NYSE Composite Index includes more than 1,900 stocks, of which over 1,500 are U.S. companies.
Obligation Bond
A municipal bond used to secure a mortgage on property or other physical assets that can be liquidated. The face value of the bond is greater than the value of the property itself.
Offer
When one party expresses interest to buy or sell an asset from another party. The offering price is often the highest the buyer will pay to purchase an asset, and the lowest that the seller will accept.
Offshore
Located or based outside of one's national boundaries. The term offshore is used to describe foreign banks, corporations, investments and deposits. A company may legitimately move offshore for the purpose of tax avoidance or to enjoy relaxed regulations. Offshore financial institutions can also be used for illicit purposes such as money laundering and tax evasion.
Oil ETF
A category of exchange-traded funds that invest in companies engaged in oil and gas discovery, production, distribution, and retail. Some oil ETFs may be set up as commodity pools – with limited partnership interests instead of shares – and invest in derivative contracts such as futures and options.
One Night Stand Investment
A purchased security that was intended for a long-term investment, but is instead sold the next day. One night stand investments are often sold urgently on the trading day after purchase, because the investor regrets buying the shares to such a degree that fear and panic begin setting in.
Paid-Up Capital
The amount of a company's capital that has been funded by shareholders. Paid-up capital can be less than a company's total capital because a company may not issue all of the shares that it has been authorized to sell. Paid-up capital can also reflect how a company depends on equity financing.
Paired Shares
The stock of two separate companies that are under the management or supervision of a single corporation. Paired shares are traded as if they are one stock and are sold as one unit. The stock of both companies typically appears on one stock certificate, with each stock printed on one side of the stock certificate. In general, one stock yields a higher dividend, while the other has a greater potential for growth. A share of stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.
Par
The face value of a bond. Generally $1,000 for corporate issues, with higher denominations such as $10,000 for many government issues.
Placement
The sale of securities to a small number of private investors instead of to the general investing public.
Principal
The amount borrowed or the amount still owed on a loan, separate from interest. The original amount invested, separate from earnings.
Qualification Ratio
Ratio of debt to income and housing expense to income that is used by mortgage lenders to determine a borrower's credit-worthiness for certain loan amounts.
Quarterly Earnings Reports
A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net income, earnings per share, earnings from continuing operations and net sales. These reports follow the end of each quarter.
Quick Ratio
An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.
Quote
The last price at which a security or commodity traded, meaning the most recent price on which a buyer and seller agreed and at which some amount of the asset was transacted.
Rally
A period of sustained increases in the prices of stocks, bonds, or indexes. This type of price movement can happen during either a bull or a bear market, when it is known as either a bull market rally or a bear market rally, respectively. However, a rally will generally follow a period of flat or declining prices.
Rate of Change
The speed at which a variable changes over a specific period of time. Rate of change is often used when speaking about momentum and it can generally be expressed as a ratio between a change in one variable relative to a corresponding change in another.
Real Value
Nominal value adjusted for inflation. Real value is obtained by removing the effect of price level changes from the nominal value of time-series data, so as to obtain a truer picture of economic trends.
Real-Time Quote
This is the actual price of a security at that moment in time. Most prices of securities that are displayed on various websites are delayed quotes.
Recapture
A condition set by the seller of an asset that gives him/her the right to purchase back some or all of the assets within a certain period of time.
S&P 500
is a stock market index based on the market capitalizations of 500 leading companies publicly traded in the U.S. stock market, as determined by Standard & Poor's. It differs from other U.S. stock market indices such as the Dow Jones Industrial Average and the Nasdaq due to its diverse constituency and weighting methodology. It is one of the most commonly followed equity indices and many consider it the best representation of the market as well as a bellwether for the U.S. economy.
Settlement Risk
The risk that one party will fail to deliver the terms of a contract with another party at the time of settlement. Settlement risk can be the risk associated with default at settlement and any timing differences in settlement between the two parties. This type of risk can lead to principal risk.
Share
A unit of ownership interest in a corporation or financial asset. While owning shares in a business does not mean that the shareholder has direct control over the business's day-to-day operations, being a shareholder does entitle the possessor to an equal distribution in any profits, if any are declared in the form of dividends. The two main types of shares are common shares and preferred shares.
Shareholder
Any person, company, or other institution that owns at least one share in a company. A shareholder may also be referred to as a "stockholder."
Speculation
The act of trading in an asset, or conducting a financial transaction, that has a significant risk of losing most or all of the initial outlay, in expectation of a substantial gain. With speculation, the risk of loss is more than offset by the possibility of a huge gain; otherwise, there would be very little motivation to speculate.
Takeout
A slang term denoting the purchase of a company through an acquisition, merger or other form of buyout. A takeout can refer to a hostile takeover, a friendly merger, or a leveraged or management buyout.
Tax Break
A savings on a taxpayer's liability.
Tax Haven
A country that offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment. Tax havens also provide little or no financial information to foreign tax authorities.
Top Line
A reference to the gross sales or revenues of a company, or an allusion to a course of action that increases or reduces revenues.
Trade
A basic economic concept that involves multiple parties participating in the voluntary negotiation and then the exchange of one's goods and services for desired goods and services that someone else possesses.
U.S. Treasury
Created in 1798, the United States Department of the Treasury is the government (Cabinet) department responsible for issuing all Treasury bonds, notes, and bills.
Ultrafast trading
A lucrative and highly competitive method of stock trading that uses special software that works in milliseconds to make trades in reaction to market changes. This type of trading has been criticized for worsening stock swings and for unfairly manipulating stock prices. The software's advocates say it improves trading efficiency.
Unamortized Bond Discount
An accounting methodology for certain bonds. The unamortized bond discount is the difference between the par of a bond - the value of the bond at maturity - and the proceeds from the sale of the bond by the issuing company, less the portion that has already been amortized on the profit and loss statement.
Valuation
The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.
Value
The monetary, material or assessed worth of an asset, good or service. In accounting, value describes what something is worth in terms of something else.
Venture Capital
Money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns.
Vertical Analysis
A method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities and equities) in a balance sheet is represented as a proportion of the total account. The main advantage of vertical analysis is that the balance sheets of businesses of all sizes can easily be compared.
Vertical Market
A group of companies that serve each other's specialized needs and that do not serve a broader market. A vertical market is tightly focused on meeting the needs of one specific industry. Vertical markets are focused on a single niche, such as creating payroll software for start-up Internet companies.
Waiver
The voluntary action of a person or party that removes that person's or party's right or particular ability in an agreement. The waiver can either be in written form or some form of action. A waiver essentially removes a real or potential liability for the other party in the agreement.
Wall Street
A Street in lower Manhattan that is the original home of the New York Stock Exchange.
Warrant
A derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue as a "sweetener" to entice investors.
Wash
A series of transactions that results in a zero net sum gain. This can be the result of a loss on one investment and a gain on another or it can be the result of buying and selling the stock of a single company.
Weak Longs
Refers to the group of investors that holds a long position and is quick to exit that position at the first sign of weakness. This group of investors is generally looking to capture the potential upside in a given security, but is not willing to take much loss. These investors will quickly close their positions when a trade does not work in their favor.
Y-Share
A class of mutual fund shares that often has a high minimum investment, such as $500,000 per lot, and the added benefit of waived or limited load charges and fees. Due to the high minimum investment required, Y-shares are often only accessible by large institutional investors.
Year to Date – YTD
The period beginning January 1st of the current year up until today's date.
Yield
The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment's cost, its current market value or its face value.
Yield to Call
The yield of a bond or note if you were to buy and hold the security until the call date. This yield is valid only if the security is called prior to maturity. The calculation of yield to call is based on the coupon rate, the length of time to the call date and the market price.
Yield to Maturity – YTM
The rate of return anticipated on a bond if it is held until the maturity date. YTM is considered a long-term bond yield expressed as an annual rate. The calculation of YTM takes into account the current market price, par value, coupon interest rate and time to maturity.
Z-Bond
The final tranche in a series of mortgage-backed securities that is the last one to receive payment. Used in some collateralized mortgage obligations (CMO), Z-bonds pay no coupon payments while principal is being paid on earlier bonds. Interest that would have been paid on Z-bonds is used instead to pay down principal more rapidly on the earlier series of bonds.
Z-Share
A class of mutual fund shares that employees of the fund's management company are allowed to own. Employees may have the option of buying Z-shares or receiving them as a part of compensation or a reward package.
Zero Cost Dollar
A type of positive-carry collar that secures a return through the purchase of a cap and sale of a floor. Also called "zero cost options" or "equity risk reversals."
Zig Zag Indicator
A trend following indicator that is used to predict when a given security's momentum is reversing. The indicator is used by traders to eliminate random price fluctuations and attempts to profit when the trend changes. The Zig Zag tool is often used in wave analysis to determine the positioning of the stock in the overall cycle.
Zone of Resistance
A price zone in which a stock finds resistance and begins to trade downward. In technical analysis, that support occurs not at a finite point, but in a zone.


Entidad Regulada y Supervisada por la Superintendencia del Mercado de Valores.
Licencia para operar como Organización Autorregulada mediante Resolución No. CNV-349-90 de 30 de marzo de 1990