General Investment Glossary
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General Investment Glossary
ADR (American Depositary Receipt):
ADR stands for American Depositary Receipt. An American Depositary Receipt is a physical certificate evidencing ownership in one or several American Depositary Shares (ADS). The terms ADR and ADS can be used interchangeably. An ADS is a U.S. dollar denominated form of equity ownership in a non-U.S. company. For example, Toyota Motor Corp. is a Japanese company listed on the New York Stock Exchange. Some of Toyota's shares are held by a custodian bank in Japan for the direct representation on the NYSE.
It's important to note that some ADSs or ADRs represent more than one share of the actual stock. One "share" of Toyota's ADS on the NYSE gives an investor the rights of two shares of the actual company stock.
Ask:
The price a seller is willing to accept for a security, also known as the offer price. Along with the price, the ask quote will generally also stipulate the amount of the security willing to be sold at that price.
Bear Market:
A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, which contributes to further pessimism. Although figures can vary, for many, a downturn of 20% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.
Bid:
An offer made by an investor, a trader or a dealer to buy a security. The bid will stipulate both the price at which the buyer is willing to purchase the security and the quantity to be purchased.
This is the opposite of the ask, which stipulates the price a seller is willing to accept for a security and the quantity of the security to be sold at that price.
Bull Market:
A financial market of a group of securities in which prices are rising or are expected to rise. The term "bull market" is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.
Buyer's Call:
An agreement between a buyer and seller whereby a commodity purchase occurs at a specific price above a futures contract for an identical grade and quantity
Buyer's Market:
A market condition characterized by an abundance of goods available for sale.
Call:
The period of time between the opening and closing of some future markets wherein the prices are established through an auction process.
Call Option:
An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.
Commodity:
A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. When they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade.
The Dow Jones Industrial Average:
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq.
ETF (Exchange-Traded Fund):
A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.
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. Thus, the percentage change is more important than the actual numeric value.
IPO (Initial Public Offering):
The first sale of a 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.
In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market.
Long (or Long Position):
The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value.
Option:
A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (excercise date).
Options are extremely versatile securities that can be used in many different ways. Traders use options to speculate, which is a relatively risky practice, while hedgers use options to reduce the risk of holding an asset.
Read our detailed Options Trading Guide to take the mystery out of options.
Penny Stock:
A stock that trades at a relatively low price and market capitalization, usually outside of the major market exchanges. These types of stocks are generally considered to be highly speculative and high risk because of their lack of liquidity, large bid-ask spreads, small capitalization and limited following and disclosure. They will often trade over the counter through the OTCBB and pink sheets.
Portfolio:
A grouping of financial assets such as stocks, bonds and cash equivalents, as well as their mutual, exchange-traded and closed-fund counterparts. Portfolios are held directly by investors and/or managed by financial professionals.
Premium:
Simply, the premium is the price of the option you are buying. A premium can also refer to the monetary credit you get if you are selling an option.
Put Option:
An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy shares.
Risk:
The chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment. Risk is usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment.
Any person, company, or other institution that owns at least one share in a company.
Short (or Short Position):
The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value.
Short Selling:
The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short.
Small Cap:
The "cap" in small-cap refers to the value of the stock's market capitalization. Small-cap stocks are stocks with small market capitalizations. In general, most brokerages define small-cap stocks as companies having a market cap between $300 million and $2 billion. Anything smaller than $300 million is often refered to as a "micro-cap" stock, and companies with market caps larger than $2 billion and less than $10 billion are "mid-cap" stocks. Companies with over $10 billion in market cap are "large-cap" stocks.
