Equity:

Ownership interest in a corporation in the form of common stock or preferred stock. It

also refers to total assets minus total liabilities, in which case it is also referred to as
shareholder's equity or net worth or book value. In real estate, it is the difference
between what a property is worth and what the owner owes against that property (i.e. the
difference between the house value and the remaining mortgage or loan payments on a
house). In the context of a futures trading account, it is the value of the securities in the
account, assuming that the account is liquidated at the going price. In the context of a
brokerage account, it is the net value of the account, i.e. the value of securities in the
account less any margin requirements.

common stock:

Securities representing equity ownership in a corporation, providing voting rights, and

entitling the holder to a share of the company's success through dividends and/or
capital appreciation. In the event of liquidation, common stockholders have rights
to a company's assets only after bondholders, other debt holders, and preferred
stockholders have been satisfied. Typically, common stockholders receive one vote
per share to elect the company's board of directors (although the number of votes is
not always directly proportional to the number of shares owned). The board of
directors is the group of individuals that represents the owners of the corporation
and oversees major decisions for the company. Common shareholders also receive
voting rights regarding other company matters such as stock splits and company
objectives. In addition to voting rights, common shareholders sometimes enjoy
what are called "preemptive rights". Preemptive rights allow common shareholders
to maintain their proportional ownership in the company in the event that the
company issues another offering of stock. This means that common shareholders
with preemptive rights have the right but not the obligation to purchase as many
new shares of the stock as it would take to maintain their proportional ownership in
the company. also called junior equity.

preferred stock:

Capital stock which provides a specific dividend that is paid before any dividends are
paid to common stock holders, and which takes precedence over common stock in
the event of a liquidation. Like common stock, preferred stocks represent partial
ownership in a company, although preferred stock shareholders do not enjoy any
of the voting rights of common stockholders. Also unlike common stock, a
preferred stock pays a fixed dividend that does not fluctuate, although the company
does not have to pay this dividend if it lacks the financial ability to do so. The main
benefit to owning preferred stock is that the investor has a greater claim on the
company's assets than common stockholders. Preferred shareholders always receive
their dividends first and, in the event the company goes bankrupt, preferred
shareholders are paid off before common stockholders. In general, there are four
different types of preferred stock: cumulative preferred, non-cumulative,
participating, and convertible. also called preference shares.
Shareholder:

One who owns shares of stock in a corporation or mutual fund. For corporations,
along with the ownership comes a right to declared dividends and the right to vote
on certain company matters, including the board of directors. also called
stockholder.

book value:

A company's common stock equity as it appears on a balance sheet, equal to total

assets minus liabilities, preferred stock, and intangible assets such as goodwill.
This is how much the company would have left over in assets if it went out of
business immediately. Since companies are usually expected to grow and generate
more profits in the future, market capitalization is higher than book value for most
companies. Since book value is a more accurate measure of valuation for
companies which aren't growing quickly, book value is of more interest to value
investors than growth investors.

Futures:

A standardized, transferable, exchange-traded contract that requires delivery of a

commodity, bond, currency, or stock index, at a specified price, on a specified
future date. Unlike options, futures convey an obligation to buy. The risk to the
holder is unlimited, and because the payoff pattern is symmetrical, the risk to the
seller is unlimited as well. Dollars lost and gained by each party on a futures
contract are equal and opposite. In other words, futures trading is a zero-sum
game. Futures contracts are forward contracts, meaning they represent a pledge
to make a certain transaction at a future date. The exchange of assets occurs on the
date specified in the contract. Futures are distinguished from generic forward
contracts in that they contain standardized terms, trade on a formal exchange, are
regulated by overseeing agencies, and are guaranteed by clearinghouses. Also, in
order to insure that payment will occur, futures have a margin requirement that
must be settled daily. Finally, by making an offsetting trade, taking delivery of
goods, or arranging for an exchange of goods, futures contracts can be closed.
Hedgers often trade futures for the purpose of keeping price risk in check. also
called futures contract.

Mortgage:

A loan to finance the purchase of real estate, usually with specified payment periods
and interest rates. The borrower (mortgagor) gives the lender (mortgagee) a lien
on the property as collateral for the loan.
brokerage account:

A customer's account at a brokerage. There are three kinds of brokerage accounts. The
most basic kind is a cash-management account, into which investors place money in
order to make trades. There must be enough money in the account to cover the trade at
the time of its execution (including both the price of the security and the commission), or
the investor must be able to pay for the trade within three days (which is called the
settlement date). Some brokerage firms accept credit cards to fund cash accounts, but the
most require cash or a personal check. Such an account is often a good substitute for a
bank account. A second, more sophisticated kind of brokerage account is a margin
account, which allows an investor to buy securities with money borrowed from the
broker. The Federal Reserve limits margin borrowing to at most 50% of the amount
invested, but some brokerages have even stricter requirements, especially for volatile
stocks. brokerages charge a relatively low interest rate on margin loans in order to
encourage investors to buy on margin. A third kind of brokerage account is a
discretionary account, which permits the broker to buy and sell shares for the investor
without first contacting the investor for approval.

margin requirement:

The amount that an investor must deposit in a margin account before buying on margin or
selling short, as required by the Federal Reserve Board's Regulation T.

gift tax:

A graduated tax assessed against a person who gives money or an asset to another person
without receiving fair compensation. A significant amount of each gift is tax-free.
There are no exclusion limits on gifts given to a spouse unless the spouse is not a
U.S. citizen. The recipient of the gift does not report income except when the gift is
a property or stock. The recipient still has to pay taxes if he or she makes a profit
from the gift.

stapled security:

A security which is comprised of two parts that cannot be separated from one another.
The two parts of a stapled security are a unit of a trust and a share of a company.
The resulting security is influenced by both parts, and must be treated as one unit at
all times, such as when buying or selling the security.

Repatriation:
Capital flow from a foreign country to the country of origin. This usually refers to
returning returns on a foreign investment in the case of a corporation, or
transferring foreign earnings home in the case of an individual.

wash sale:

Stock approved by the Federal Reserve and an investor's broker as being suitable for
providing collateral for margin debt. Depositing marginable stocks (or any
other marginable securities) in a margin account is an effective way for an investor
to reduce financing charges. However, the criteria to ensure that securities are
suitable as collateral for margin debt can be quite strict. The Federal Reserve has a
minimum set of standards for marginable stock, but a broker can choose to set
stricter standards.

marginable stock:

Stock approved for buying on margin.

participation certificate:

Financing in which an individual buys a share of the lease revenues of an agreement

made by a municipal or governmental entity, rather than the bond being secured by
those revenues. This form of financing can be used by the municipal or government
entity to circumvent restrictions that might exist on the amount of debt they might
be able to take on. As of now, the only agencies to issue or guarantee such
certificates are Freddie Mac, Fannie Mae, Ginnie Mae and Sallie Mae.

bear raid:

A trader's attempt to force down the price of a particular security by heavy selling or
short selling. In the case of short selling, the trader then makes a profit by buying
the stock cheaply to cover the short position. Bear raids are often carried out by
large groups of traders together, since an individual trader might not have a large
enough trade to influence market price significantly. This practice is not allowed
under SEC regulations.

Odd-lot theory:

A technical analysis theory based on using odd-lot trading behavior as a contrary

indicator, under the assumption that odd lots are traded primarily by small investors
who are on average less experienced than institutional investors. The theory has
declined in popularity as historical data has failed to support it.
U.S. Treasury Securities:

Negotiable U.S. Government debt obligations, backed by its full faith and credit. Exempt
from state and local taxes. U.S. Treasury Securities are issued by the U.S.
government in order to pay for government projects. The money paid out for a
Treasury bond is essentially a loan to the government. As with any loan, repayment
of principal is accompanied by a specified interest rate. These bonds are guaranteed
by the "full faith and credit" of the U.S. government, meaning that they are
extremely low risk (since the government can simply print money to pay back the
loan). Additionally, interest earned on U.S. Treasury Securities is exempt from state
and local taxes. Federal taxes, however, are still due on the earned interest. The
government sells U.S. Treasury Securities by auction in the primary market, but they
are marketable securities and therefore can be purchased through a broker in the very
active secondary market. A broker will charge a fee for such a transaction, but the
government charges no fee to participate in auctions. Prices on the secondary market
and at auction are determined by interest rates. U.S. Treasury Securities issued today
are not callable, so they will continue to accrue interest until the maturity date. One
possible downside to U.S. Treasury Securities is that if interest rates increase during
the term of the bond, the money invested will be earning less interest than it could
earn elsewhere. Accordingly, the resale value of the bond will decrease as well.
Because there is almost no risk of default by the government, the return on Treasury
bonds is relatively low, and a high inflation rate can erase most of the gains by
reducing the value of the principal and interest payments. There are three types of
securities issued by the U.S. Treasury (bonds, bills, and notes), which are
distinguished by the amount of time from the initial sale of the bond to maturity. also
called Treasuries.

Circular flow of income

A model that indicates how money moves throughout an economy, between businesses
and individuals. Investors spend their income by consuming goods and services from
businesses, paying taxes and investing in the stock market. Businesses use the money
spent by individuals while consuming and the money raised from selling stock to pay
for capital to run their business, purchase material to manufacture products and to
pay employees. All expenditures from individuals become the income of the
businesses, and the expenditures of the businesses become the income of the
individuals.
Market maker:

A brokerage or bank that maintains a firm bid and ask price in a given security by
standing ready, willing, and able to buy or sell at publicly quoted prices (called
making a market). These firms display bid and offer prices for specific numbers of
specific securities, and if these prices are met, they will immediately buy for or sell
from their own accounts. Market makers are very important for maintaining liquidity
and efficiency for the particular securities that they make markets in. At most firms,
there is a strict separation of the market-making side and the brokerage side, since
otherwise there might be an incentive for brokers to recommend securities simply
because the firm makes a market in that security.

Watermark:

An image on paper currency designed to differentiate officially sanctioned bills from

counterfeit bills.

Corporate spread duration:

The price sensitivity of a corporate bond to a 100 basis point change in its spread over
LIBOR. Because a change in the option-adjusted spread affects the amount of cash
flows received by the option holder. A corporate bond option investor maintaining a
long position has to decide if the option should be executed because changes in the
market price of the bond alters the return on the investment. For example, if the
spread between the corporate bond option and Treasuries narrows, the price of the
bond may rise to the point at which the option issuer could initiate the call.