Confused by some of the terminology and lingo? Here are some of the more commonly used terms and what they mean.
A person licensed to conduct securities transactions on behalf of a broker-dealer firm. Depending on the type of license(s) they hold, the representative will buy and sell stocks, bonds, and other types of securities, and paid a commission for effecting trades.
After-hours trading refers to stock trading outside the traditional trading hours of a major exchange, such as the New York Stock Exchange and the Nasdaq Stock Market. While after-hours trading promises greater opportunities and convenience for individual investors, it also involves significant risk. The after-hours market can be much more volatile and far less liquid. Before considering an after-hours trade, be sure to educate yourself about the risks.
Day traders rapidly buy and sell stocks throughout the day in the hope that their stocks will continue climbing or falling in value for the seconds to minutes they own the stock, allowing them to lock in quick profits. Day trading is extremely risky and can result in substantial financial losses in a very short period of time.
Describe the product, the company, the terms for purchasing the product, and the risks associated with the investment. They are provided to the investor prior to purchase.
The part of the net earnings, or profits, of a corporation that is distributed to its stockholders. Dividends are declared by the board of directors, usually at regular intervals. In the U.S., they may be paid in bonds or stocks of a company, in notes, or in cash. Holders of preferred stock must be paid their dividends before anything is paid on common stock. Businesses being terminated may issue liquidation dividends.
Buying and selling shares of stock or other securities based on special knowledge not available to others, such as information about new products not yet public. Insider trading is illegal.
Initial Public Offering (IPO)
IPO occurs when a company first sells its shares to the public. The underwriters and the company that issues the shares control the IPO process. They have wide latitude in allocating IPO shares. The SEC does not regulate the business decision of how IPO shares are allocated.
The uncertainty or probability of losing part or all of the invested amount rather than an expected profit.
Money Market Funds
A type of mutual fund that invests in high-yielding, short-term money-market instruments, such as U.S. government securities, commercial paper, and certificates of deposit. Returns of money-market funds usually parallel the movement of short-term interest rates. Some funds buy only U.S. government securities, such as Treasury bills, while general-purpose funds invest in various types of short-term paper.
An investment company where investor monies are pooled to purchase stocks, bonds, or other securities and professionally managed. Mutual funds will sometimes charge a management fee and sales fee. A fund prospectus describes the operation and management of the fund, including its investment objective, holdings, and other disclosures.
Over the Counter
A method of buying and selling securities outside the standard. The over-the-counter (OTC) market is composed of thousands of far-flung stock and bond dealers and brokers who negotiate most transactions by computer or telephone. For the most part, dealers purchase securities for their own accounts and sell them at a markup. Prices of many U.S. OTC issues are quoted on NASDAQ (National Association of Securities Dealers Automated Quotations), a computerized system.
Buying and selling such items as securities, commodities, or land in the hope of sudden increases in their value and often with the risk of sudden decline. Speculation, along with margin trading, is believed to be the cause of the infamous crash of 1929.
A security representing the ownership of a fraction of a corporation. A corporation will raise funds to operate its business by selling shares. In return, the shareholder is entitled to a proportion of the corporation's assets and profits (dividends) depending upon how many shares they own.