The A-Z Of Trading Talk
A/D-line: See Advance/Decline Line.
Add: To increase a position by either purchasing additional shares/units, also called buying more, or by selling additional shares/units (if short), also called selling more.
ADR: See American Depository Receipt.
Abbreviation: A/D-line. A line made from the difference between the
number of stocks that went up & the number of stocks that went down
for each trading day. Stocks that are unchanged are not counted. Eg, if
1300 stocks go up & 1000 stocks go down, the difference is +300. The
300 is added to the total from the previous day. Also called breadth (of
the market). The A/D-line shows what the great mass of stocks are doing
in contrast to the limited number of stocks contained in any stock
index, particularly the Dow. Its especially noteworthy when it
diverges from the stock averages. Eg, the Dow is making new highs while
the A/D-line is falling, showing that while a few stocks may be
leading the market the majority of the market arent following.
This would make the new Dow highs suspect & increase the odds a
reversal is coming. Conversely, its bullish if the A/D-line makes a
new high along with the Dow, confirming new Dow highs.
American Depository Receipt: Abbreviation: ADR. Instruments issued by American banks as counterparts for non-US securities. In practice, same as shares of a corporation, except that the ADR is traded on a US exchange, not the exchange of the country in which the corporation is domiciled.
Ask: The price someone is willing to sell at. See Bid/Ask spread.
At-the-Market: To buy/sell at the market. See Market order.
At-the-Money: An option that has a strike price the same or very close to the market value of the underlying security. See also Intrinsic Value.
Automatic Reinvestment: Automatic reinvestment of shareholder dividends in a corporations stock. The corporation usually does this without brokerage fees & may even offer a small discount from the current price.
Average Down: To buy more at a lower price than the original purchase. Eg, if you bought LOr蠬 shares at 1015 & later purchased more at 950, you averaged down. Not recommended unless an experienced investor. But a tactic that can turn a loss into gain, especially if adept at discerning chart support & resistance levels.
Average Up: 1) To sell more at a higher price than the original purchase. Eg, you sold short Micron Tech at 70. If you sell more at 80, you averaged up. Not recommended unless an experienced investor. But a tactic that can turn a loss into gain, especially if adept at discerning chart support & resistance levels; 2) Infrequently used to describe additional buying at higher prices.
Basis Point: 1) .01% of yield in a fixed-income security. If the T-Bond yield drops from 7.05% to 6.40%, its declined 65 basis points; 2) Used in referring to changes in price in other than fixed-income securities. Eg, if Yen futures drop from 98.10 to 95.50, the drop can be described as 260 basis points.
Bearish: Having the opinion a market is going to go down.
Bearish Divergence: Most commonly, a new high in price without a corresponding new high in a related price, average, index or other technical indicator. Eg, if a stock makes a new high, but a technical indicator such as RSI doesnt, it points to a loss of upward momentum & possible correction or change in trend. See also Bullish Divergence, Divergence & RSI.
Beta: A measure of a stocks volatility in comparison to the S&P 500 index. The S&P 500 index is given a value of 1. If a stock is more volatile than the S&P 500 index, it will have a beta greater than 1. If less volatile, the beta will be less than 1. Eg, if the S&P 500 index moves 5%, a stock that usually moves 7.5% will have a beta of 1.50, indicating that its 1.5x as volatile as the S&P 500 index. If the stock usually moves 2%, it would have a beta of .40. Betas are useful in constructing portfolios of greater or lesser volatility than the S&P 500 index.
Bid: The price someone is willing to pay. See Bid/Ask spread.
Bid/Ask spread: The difference in price at which you can buy & sell. Eg, if IBM has a bid/ask spread of 159 at 159 1/4, youd pay 159 1/4 if buying & receive 159 if selling. The Bid/Ask spread is not unique to financial markets. If you were to purchase a numismatic coin from a coin dealer, youd pay the Ask price. If you wanted to sell the same coin to the dealer, youd receive the Bid price. The Bid/Ask spread is the price of doing business in any market in which you are not in the business yourself. Also called Bid/Offer spread. Bid/Offer spread: See Bid/Ask spread.
Big Board: New York Stock Exchange.
Big Brother (BB): From the character in George Orwells novel, 1984, symbolising an omnipresent, seemingly benevolent figure, but in reality exerting oppressive control over individual lives by an authoritarian govt. Big Brother can be a govt, a person, an employer, or a faceless computer database containing all the private bits & pieces of individuals lives, with impersonal & uncontrollable power to dictate their fates, directly or indirectly.
BIS: Bank for International Settlements, Basel, Switzerland. The granddaddy of all bankscentral bank for all of worlds central banks.
Blue Chip: A term of American origin, at first designating a chip off a blue stonea diamond. The term was also adopted for high-value poker chips. Its used to describe shares of 1st-class corporationsthose which are large & have a very good record of earnings & paying dividends. Theyre usually old & extremely well established. However, their prices go down as well as up, so chart analysis is vital before buying/selling.
BOJ: Bank of Japan (Japans central bank).
Bond: A long-term debt instrument issued by a govt or corporation. The term in years of various bonds can & does vary, but is usually 10 years or longer. Debt instruments with a shorter term than 10 years but over 1 year are usually referred to as Notes.
Breadth: See Advance/Decline Line.
Bullish: Having the opinion a market is going to go up.
Bullish Consensus: Generically, a survey & compilation of the percentage of advisors bullish or bearish on a particular market. A number of companies do these surveys on a daily & weekly basis. Investors Intelligence is a widely followed stock market consenus. Market Vanes Bullish Consensus is widely followed in the futures markets. See also Contrary Opinion.
Bullish Divergence: Most commonly, a new low in price without a corresponding new low in a related price, average, index or other technical indicator. Eg, if a stock makes a new high, but a technical indicator such as Stochastics doesnt, it points to a loss of downward momentum & possible correction or change in trend. See also Bearish Divergence & Divergence.
Buy Back: See Cover.
Buy More: See Add.
Buy-Stop: See Stop order.
Call (Option): 1) A type of option. A call option gives the buyer the right but not the obligation to buy a stated number of shares of a security at a stated price on or before a specified date. (Also used for bonds & futures contracts). Eg, a Dec 85 Eastman Kodak call option gives the owner the right to buy 100 shares of EK on or before the December expiration date of the option (usually the 3rd Friday of the month) at 85 regardless of the actual price of EK at the time. More frequently, if the option is in-the-money, ie, the stock is above the 85 strike price, the owner will simply sell the option & collect the profit. If EK is below 85 & the option expires, the call buyer loses all of the money (premium) paid for the option. The advantage of buying options is leverage. For several hundred dollars you have the right for a limited time to participate in the advance of a stock, which, as in the EK eg, would require a minimum investment of US$4250 (using 50% margin). The big disadvantage is that you not only have to be right about the direction of price movement, your timing must also be correct. Selling options is usually the wiser tactic as at least 80% of all options expire worthlessas theyre designed to do. See also Put (Option); 2) The action by which a company decides to redeem a security before its maturity date.
Cancel/Replace: Cancelling an order & replacing it with a different order for the same security or contract.
Cash Charts: Price charts reflecting the cash or spot price of a commodity in comparison to a forward price in the futures market.
CBOT: See Chicago Board of Trade.
Central Bank: A nations most powerful financial institution, usually state-owned, designed to regulate & control fiscal & monetary activities. It issues legal tender, backs reserves for the nations banks, controls flow of money & gold, & regulates money supply & credit. By virtue of its huge power, it greatly influences interest rates & the economy. Central Banks sometimes undertake intervention, which is fiscal or monetary interference in the marketplace to achieve a desired outcome; eg, pushing a currency up or down. They often claim their intention is to thwart currency speculators, but in truth they are thwarting the free market, blocking natural forces of supply & demand. Their intervention can be verbal (jawboning) or physical, wherein they use taxpayer money to change the value of the taxpayers money. Free market people consider such action immoral, & in the US, unconstitutional.
CFR: Council on Foreign Relations. Definitions of CFR from notable sources. Arthur Schlesinger, Jr: a front organisation for the heart of the American Establishment. Newsweek: the foreign policy establishment of the US. Richard Rovere in Esquire: a sort of Presidium for that part of the Establishment that guides our destiny as a nation. Columnist Edith Roosevelt (granddaughter of President Theodore Roosevelt): The word Establishment [CFR] is a general term for the power elite in intl finance, business, the professions & govt, largely from the northeast, who wield most of the power regardless of who is in the White House. Most people are unaware of this legitimate Mafia. Yet the power of the Establishment makes itself felt from the professor who seeks a foundation grant, to the candidate for a cabinet post or State Dept job. It affects the nations policies in almost every area. Foreign Affairs magazine is the CFR mouthpiece, & called by Time, the most influential periodical in print. Its been said, if you want to know what the US govt will be doing tomorrow, read Foreign Affairs today.
Chart Analysis: See Technical Analysis.
Chicago Board of Trade: US futures exchange on which financial instruments (T-Bonds, T-Notes, Municipal bonds) & the Grain Complex (corn, oats, soybeans, etc.) is traded.
Chicago Mercantile Exchange: Abbreviation: CME. US futures exchange on which the S&P 500 index, cattle & pork bellies are traded. A division of the CME, the International Money Market (IMM), trades currency futures & the eurodollar.
CIS: Commonwealth of Independent States. A federation of self-governing states made up of Russia & most of the former USSR republics, for the purpose of coordinating affairs.
Closed-End (Mutual) Fund: An investment company which manages a mutual fund with a limited number of shares. Listed on an exchange, it is very similar to a stock, in that you can place buy & sell orders, stop-loss orders, limit orders, etc.
COMEX: See Commodity Exchange Inc.
Commodities: See Futures.
Commodity Exchange Inc: US futures exchange on which copper, gold & silver are traded.
Common Stock: A security representing an ownership interest in a corporation. Common stockholders have claims on assets after claims of bondholders, other creditors & preferred stockholders. Common stockholders control management & company policy via voting rights.
Commonwealth: An association of 51 self-governing independent nations & various dependencies (colonies & protectorates) having in common that they were all parts of the old British Empire. The British monarch is the symbolic head & prime ministers & finance ministers meet periodically. Members consult & try to coordinate policies on economic, scientific, educational, financial, legal, & military matters.
Confirm: To validate or increase the validity of a particular market movement, usually a new or significant high or low. Eg, if the Dow makes a new high but the Dow Jones Transports doesnt, the new high is not confirmed. Can also use it with other market indices, eg, A/D-line. More generally, confirmation has to do with comparing a number of technical indicators or studies to see if most are in agreement as to future price movement. See also Divergence & Dow Theory.
Contingency order: An order that depends/is contingent upon some other parameter occurring first, usually the execution of another order. Eg, If Im filled on my order to buy 400 shares of Roche Holdings, place an order to sell 400 shares at 8550-stop. Brokers are not required to accept contingency orders. If you are a valued client (translation: your business generates good commissions for the broker), s/he will accept the contingency order but only on a not-held basis.
Contrary Opinion: A market theory based on the concept that the crowd is usually wrong. A contrary opinion is a minority opinion (& a small minority at that) which is the opposite of what most people think will occur. Eg, if everyone is bullish on bonds, the contrarian turns bearish. See also Bullish Consensus.
Convertible Bond: A bond that can be converted into common shares at a price or rate specified upon issuance of the bond.
Correction: Any temporary reversal or retracement in price movement in the opposite direction of the price movement that just occurred. Normally used when referring to a price movement not in the direction of the primary trend. A correction can develop into a change in the trend, but this can only be determined retrospectively.
Cover: The action of buying after initially selling (shorting). Eg, Cover my AT&T short at 34 instructs broker to buy the same number of AT&T shares you initially sold, when the price of AT&T reaches 34.
Daily Charts: Charts which plot the high, low & closing price of each days trading activity. See also Line & Bar.
Day order: All orders are considered day orders unless specifically stated otherwise. Day orders are good for that trading session only & expire at the end of the trading session.
Deflation: An actual decrease in prices. The opposite of inflation, which is an increase in prices.
Disinflation: A decrease in the rate of inflation. Eg, inflation is 4% one year & 3% the next year.
Divergence: Failure of the price movement of one security, average, index or technical indicator to confirm the price movement of another security, average, index or technical indicator. See also Confirm.
Diversification: The reduction of risk by investing in non-related securities & different types of investments. Broad categories of investment would include stocks, bonds, CDs, money market accounts, currencies, precious metals, futures, real estate & collectibles (art, coins, stamps, etc). Diversification is necessary because there are no sure things in investing. Risk-spreading ensures that if one area goes sour, one may still be doing well in another. In fact, a properly diversified portfolio is designed so that occurs.
Dividend: Payments made by corporations to their shareholders in cash or stock.
DJIA: See Dow Jones Industrial Average.
Dow: See Dow Jones Industrial Average.
Dow Jones Industrial Average: Abbreviation: DJIA; Dow. A market average of 30 widely held NYSE-listed stocks. Average is not weighted for capitalisation of the stocks. It is computed by taking the sum of the prices of the 30 stocks & dividing by an adjusted denominator. As the denominator gets smaller, the volatility in the Dow increases. The DJIA is the worlds most widely followed & quoted stock market index.
Dow Jones Transportation Average: Often referred to as Dow Transports or simply Transports. Originally the Rail Average, the DJTA is comprised of 20 stocks consisting of airlines, freight, railroads, etc.
Dow Theory: Theory that a major trend in the stock market must be confirmed by both the Dow Jones Industrial Average & the Dow Jones Transportation Average (formerly the Rail Average). If one of the averages makes a new high or low, that new high or low is suspect until the other average also makes a new high or low, thus confirming the new high or low. Originally conceived by Charles H. Dow as an indicator of business rather than the stock market. Robert Rhea subsequently developed the theory further. It is not as simple a theory as the above short definition might indicate & is often misquoted & misunderstood. See Confirm.
Earnings Per Share: Abbreviation: EPS. Corporations net income after taxes & payments to preferred shareholders divided by the number of outstanding shares of stock. See also Price-Earnings Ratio.
ECU: European Currency Unit, forerunner of the Euro. See Euro.
EFTA: European Free Trade Association, closely linked to EU, but whose members are non-EU. Members include Iceland, Liechtenstein, Norway & Switzerland.
Emerging Markets: Markets in countries that are not well established economically/financially, but are making progress in that direction. Eg, China, Thailand.
EMS: European Monetary System. Arrangement linking individual currencies of EU nations to stabilise foreign exchange & counter inflation via formulas called ERM (Exchange Rate Mechanism).
ERM: see EMS.
EU: European Union. Unwieldy, socialist, mega-govt institution which ordains common market, common currency, common foreign & security policy, common defence policy, cooperation on justice & home affairs, & creation of EU central bank. Includes 15 European nations: Austria, Belgium, Britain, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain & Sweden.
Euro: EUs single currency unit set for 1999 launch, in theory, to eventually replace all individual EU currencies.
Eurodollar: US dollars on deposit at European banks.
Ex-Dividend Date: The date on or after which a buyer will not receive the next dividend. In US, currently 2 days before the record date. When a stock trades ex-dividend, it means on that day a dividend was paid on the share & this amount is deducted from the share price. Charts sometimes have an X marked on them to denote such days. The relationship between the ex-dividend date & Record Date depends upon the number of days required to settle a transaction. See also Record Date.
Fill: The price at which you bought or sold. Eg, Mr. Jones, your fill was 117 on 5 June T-Bonds. Verb form filled means the order was executed/completed. Mr. Jones, your T-Bond order was filled.
Flat: Having no position long or short. Eg, Im flat Corn.
Fundamental Analysis: One of the two broad categories of market analysis (other is technical) used to obtain indications of future price movements. It is a quantitative approach based upon a companys balance sheet, profit & loss statement, industry trends, economic & managerial data, supply & demand, etc. The problem with using only fundamental analysis is that you never know what you dont know about a company, which may be pivotal in buy/sell decisions. Also, deciding how much weight to give each piece of data is highly arbitrary. Lastly, fundamental analysis doesnt tell you when to buy/sell. Your analysis can be correct, but the market may not recognise the opportunity for years. See also Technical Analysis.
Futures: A contract which contains an agreement to buy or sell a specific amount of a commodity (eg, corn, crude oil, gold) or a financial instrument (eg, Treasury Bond, S&P 500, Eurodollar) at a particular price on a stipulated date. It obligates the buyer to purchase & the seller to sell, unless the contract is offset before settlement date (which is 97% of the time). Sometimes called commodities. But with the introduction of financial futures in addition to physical commodities, futures is the preferred term.
G-7 (Group of Seven): Elite club of 7 major industrial democracies who meet periodically to discuss world economies & other issues. Members are Canada, France, Germany, Italy, Japan, UK & US.
Gap: A span in price between the high of the previous trading session, & the low of the subsequent trading session or between the low of the previous trading session & the high of the subsequent trading session in which no trades occurred.
Gap Opening: An opening price that is either above the high or below the low of the previous trading session.
Gilts: Securities of corporations that have shown over time their ability to pay continuous dividends or interest. Most commonly used to describe bonds, as in gilt-edged bonds.
GNP & GDP: Gross National Product & Gross Domestic Product. GNP is the total worldwide market value of all goods & services produced by a nation during a specified period (usually a year). GDP is similar, but reported quarterly & covers only goods & services produced inside a nations borders. In this era of multi-natl corporations, GDP is considered the more accurate barometer of a nations economic performance.
Gold Standard: A monetary standard under which a paper currency unit is equal in value to & exchangeable for a specified amount of gold. Its purpose is to put a limit on govt deficit spending & to give citizens a currency that maintains its value & has global acceptance. It blocks inflation. Politicians dislike it as it makes them balance their budget & puts power in the hands of the people. The US Constitution demands gold & silver backing for the US dollar, but politicians found ways to bypass the Constitution.
GTC order: Good-Till-Cancelled order. See Open order.
ILO: Intl Labour Organisation. A UN organisation to promote employment, improve labour conditions & living standards. Very socialist-oriented & probably creates more problems than it solves.
IMF: International Monetary Fund. See World Bank.
In-the-Money: Phrase used to describe any option in which there is intrinsic value. See also Intrinsic Value.
Intervention: see Central Bank.
Intrinsic Value: For call options: The amount the market price of the underlying security is above the options strike price. Eg, an IBM call option with a strike price of 100 with IBM stock at 110, has an intrinsic value of 10 & is in-the-money. If IBM were at 95, the call option would have no intrinsic value & would be out-of-the-money. If IBM were at 100, there would still be no intrinsic value, but the option would be at-the-money. For put options: The amount the market price of the underlying security is below the options strike price. Eg, a Xerox put with a strike price of 35 with Xerox at 30, has an intrinsic value of 5. If Xerox were at 35 or higher, the put option would have no intrinsic value. See also Premium, Strike Price & Time Value.
Leverage: In the financial sense, making a given amount of money do more work than is normal for its size, in exactly the same way a properly applied lever can lift a very heavy weight. Getting more bang for your buck. The more leverage used, the more speculative is the investment. Buying stock on 50% margin is using more leverage than paying in full for the stock. Buying stock options is more leveraged than buying stock on margin. And then theres futures... welcome to hyperspace.
LIFFE: London International Financial Futures Exchange on which the FTSE-100, Italian & German bonds, long Gilts, Euro Swiss Franc & Eurodollars are traded, amongst others.
Line & Bar: Charts in which the prices of the security are posted to show the highest & lowest price of the time period (day, week, etc.) joined as a vertical line. The closing price is shown as a small horizontal bar extending to the right from the vertical bar. Many times the opening price will also be included & if so, is shown as a small horizontal bar extending to the left from the vertical bar. Volume is often included as a subgraph just below the prices. This is the most popular & flexible type of price chart. See also Point & Figure.
Long: Having bought & not yet sold. Eg, Im long 2000 shares of Gevaert. Verb form is used to indicate the action of purchasing. Eg, Go long Woodside Petroleum above 8.
Long Bond: A bond maturing in more than 10 yrs. See also Bond.
Long-term: A subjective term indicating the longest time period used in terms of investments. At a minimum, it applies to a timeframe of 1 year, but usually at least 2 years or more. Wags define a long-term investment as a short-term investment that is showing a loss. See also Medium-term & Short-term.
Maastricht: Treaty on European Union, ratified Nov 1993, at Maastricht, Netherlands, official birth of EU. Not all individual EU members have ratified all provisions. It will transform Europe without citizen understanding or consent.
MATIF: Marche A Terme International De France exchange on which CAC-40, Italian bonds, Matif Pibor & O.A.T. govt bonds are traded, amongst others.
Margin: 1) A loan from a broker to buy stock, hence buying stock on margin. Loan is usually up to 50% of the price of the stock purchased; 2) Good-faith deposit on a futures contract.
Margin Call: A brokers wake-up call that something is very wrong. More academically, a notice for additional funds to meet initial margin requirements for a security purchase or shortsale. It is usually a sign of one or more of the following: 1) account is undercapitalised (very common in futures trading); 2) not using stop-losses to limit losses on positions that arent doing what you expected; 3) buying too much stock on margin or in futures, trading too many contracts.
Market order: An order filled as soon as possible & at the best obtainable price at that time. It has the highest priority & will be filled before any other type of order. There is no guarantee at what price you will be filled, just that you will be filled. Eg, Buy 1000 shares of Lonrho, at the market.
Medium-term: A timeframe between short-term & long-term. Sometimes referred to as intermediate term. In stocks, usually refers to a 6-12 month period. In bonds, 3-10-year period. See also Short-term & Long-term.
Merc: See Chicago Mercantile Exchange.
MIT order: Market-If-Touched. Used mainly in futures markets. A MIT order becomes a market order when the specificed price is reached. An MIT order to buy must be placed at a lower price than the market is at when the order is placed. An MIT order to sell must be placed at a higher price than the market is at when the order is placed.
MOC order: A Market-On-Close order is a market order that is filled at the end of a session. Usually the last 30 seconds of trading in equities or last 2 minutes in futures. It does not mean you will be filled at the exact closing price of the day. The closing is a range of prices, any of which you might be filled at.
MOO order: A Market-On-Open order is a market order that is filled at the beginning of a trading session. (In futures, this is usually the 1st 2 minutes of trading). It does not mean you will be filled at the open price listed in the next days newspaper. The opening consists of a range of prices, any of which you might be filled at.
Moving Average: Abbreviation: mvg. Average price of a security/index/futures contract/bond over a fixed period of time. Any aspect of price can be used, but the most popular is the closing price. Eg, a 39-week moving average is the sum of the last 39 weeks closing prices divided by 39. Each week the oldest price is dropped & the current price added before the average is recalculated. It is usually represented by a line on a chart with each plot on the line being one 39-week average figure. Moving averages are used to smooth out the fluctuations in price action so the underlying trend can more clearly be seen. Some hold a stock if it remains above its 50-day moving average. This smoothing out comes at a price. It can obliterate the fine details & clues markets leave & which experienced technicians can use to their advantage. Solution: use the moving average, but only as 1 tool among many.
Multiple: See Price-Earnings Ratio.
NAFTA: North American Free Trade Agreement. Effective Jan. 1, 1994, it seeks to establish tariff-free trade & remove most cross-border investment barriers among Canada, US & Mexico by 2005. Contains provisions to add more members. Its benefits are debateable.
NATO: Military alliance of West European nations, Canada & US, created in 1949, to serve as Cold War deterrent to threat from USSR/Warsaw Pact nations. One of the most effective military alliances ever created, its now groping to redefine its mission. Its effectiveness will be neutralised if NATO becomes the military arm of the socialist, bureaucratic UN.
New York Mercantile Exchange: Abbreviation: NYMEX. US futures exchange on which the Oil Complex (Crude Oil, Heating Oil, etc), platinum, palladium & CRB Index are traded among others.
New York Stock Exchange: Abbreviation: NYSE. The oldest, largest & most well-known stock exchange in the US. Generally, stocks listed on the NYSE are larger companies. Sometimes referred to as the Big Board.
Not-Held: 1) A stipulation by a broker that s/he is not held responsible if an order is not executed, or not executed at the desired price. The order is accepted solely on a best efforts basis with no guarantees whatsoever; 2) A qualifier that allows a floor broker to use their discretion with respect to the time & price of an orders execution.
NYMEX: See New York Mercantile Exchange.
OCO order: A One-Cancels-the-Other order is an order with 2 parts. Eg, Sell 5 June Gold at 380-stop OCO 382-MIT. Assuming a current price of 381, if June Gold declines to 380 before it advances to 382, you will sell 5 contracts at 380-stop. The other 1/2 of the order, selling 5 at 382 will automatically be cancelled. Should June Gold advance to 382 before it declines to 380, you will sell 5 contracts at 382-MIT. The other 1/2 of the order, selling 5 at 380-stop will automatically be cancelled.
OECD: Organisation for Economic Cooperation & Development. Paris-based organisation of 25 of worlds leading industrial nations, pledged to promote economic growth, aid developing nations, & expand world trade.
Offer: See Ask.
Offset: Selling of the same option or futures contract originally purchased or buying of the same option or futures contract originally sold so that one is flat.
OPEC: Organisation of Petroleum Exporting Countries. Group of oil-producing nations which attempts to set world oil prices by controlling production. Powerful in the 1960s & 70s, but has lost clout due to internal squabbling & shoddy discipline.
Open order: An order that doesnt expire at the end of each trading session. An open order will remain active until the order is executed or cancelled/changed. (Some brokerages limit the time theyll keep an open order, eg, 30 days. If so, youll have to place the open order again at the end of the time limit. Be sure to record when an open order expires).
Open profits: Any gain existing in a position which hasnt been liquidated/closed. Also called paper profits.
Open-End (Mutual) Fund: A management investment company in which new shares are issued according to supply & demand of investors. Not listed on stock exchanges. Biggest drawback is inability to place stop-loss orders to automatically exit if price drops below critical areas of support. See also Closed-End (Mutual) Fund.
Open Interest: Total number of options or futures contracts that have not been liquidated. An open interest of 1 represents both the buyer & seller of a particular option or futures contract.
Option: See Call (Option) & Put (Option).
Out-of-the-Money: Phrase used to describe any option with no intrinsic value. See also Intrinsic Value.
Overbought: Term used to describe a security that has advanced appreciably & in which the probability of a corrective decline is high. Many technical oscillators, such as RSI & Stochastics, are used to try to determine at what point an overbought condition exists. The stronger the uptrend, however, the more likely an oscillator will give the technician a false signal.
Oversold: Term used to describe a security that has declined appreciably & in which the probability of a corrective rally is high. Many technical oscillators, such as RSI & Stochastics, are used to try to determine at what point an oversold condition exists. The stronger the downtrend, however, the more likely an oscillator will give the technician a false signal.
Paper profits: See Open profits.
P/E: See Price-Earnings Ratio.
Penny Stock: A relatively low-priced, highly speculative security. Many brokers define any stock under US$5 a penny stock.
Point & Figure (P&F): Charts in which prices are posted without regard to time or volume. Usually only closing prices are used. Xs are used for advancing prices & Os for declining prices. The 2 parameters used for plotting are box size & reversal amount. The box size refers to the minimum increase in price needed to add an X to the top of a column of Xs, & the minimum decrease in price needed to add an O to the bottom of a column of Os. Eg, if the value of one box was 5 points & the last plot in a column of Xs was 70, a move to 73 would not be plotted. Itd take a move to 75 before another X would be added to the column of Xs.
Reversal amount refers to the change in price, up or down, needed to create a new column. Using a standard 3-box reversal in the example above, prices would have to decline to 55 before the chart would begin a column of Os. P&F charts make support & resistance levels easy to see. They also save space. Often years of price action can be shown in a small area on a single page rather than several pages as with line & bar charts. The main drawback is the elimination of smaller price moves along with the fine details & clues included with them.
Ponzi Scheme: Investment swindle in which high profits are promised & early investors are paid off from funds raised from later ones. Named after Italian speculator Charles Ponzi, who organised such a scheme in 1919-1920. Excellent modern-day example is US Social Security system.
Position: Noun: The number of shares or units owned in a particular security if long, the number of shares or units owed, if short. Eg, My position in Tiger Oats is 2000 shares. Verb: To buy or sell a particular security. Eg, Try to position yourself in Sandoz between 1400 & 1450.
Preferred Stock: Part of the stock of a corporation that has priority over common stock in the distribution of dividends. In the event of a bankruptcy, preferred stock holders are ahead of common stock holders with regard to the distribution of assets.
Premium: The price of an option consisting of the sum of its time value & intrinsic value.
Price-Earnings Ratio: The quotient obtained by dividing a stocks current market price by the current yearly earnings per common share. Also called multiple. Eg, Intel is trading at a multiple of 26 or Intel has a P/E of 26.
Price order: An order that states the price you want to buy/sell at. Theres no guarantee the order will be filled, but if it is, it will be at the stated price or better (more favourable price). Eg, Buy 5000 shares of Bic at 600.
Profit-protecting stop order: A stop order placed above your entry price in a long position to protect some of the open profit. If short, the stop order is placed below your entry price.
PT: Permanent Traveler, Partime Taxpayer, etc. A semi-nomadic to nomadic lifestyle & philosophy in which individuals take full advantage of all legal options available to avoid Big Brother. Eg, frequent travel to different countries (normally spending about 3-6 months in each) means a person is not subject to income taxes & many other regulatory requirements of full-time residents. PTs often have business, banking, investing, residency & citizenship each in different nations to minimise taxes & maximise freedom & liberty.
Put (Option): A type of option. A put option gives the buyer the right but not the obligation to sell a stated number of shares of a security at a stated price on or before a specified date. (Also used for bonds & futures contracts). Eg, a Dec 85 Eastman Kodak put option gives the owner the right to sell 100 shares of EK on or before the December expiration date of the option (usually the 3rd Friday of the month) at 85 regardless of the actual price of EK at the time. The owner can sell the option at any time before the expiration date. Eg, if EK is trading at 80 in mid-November, the owner could sell the put option & collect the current premium. He would get $500 for the options intrinsic value (strike price of 85 minus current market price of 80 = 5) & additional premium for the remaining time value of the option. On US exchanges each option represents 100 shares of the underlying stock. See also Call (Option).
Pyramiding: Adding to your position in a particular security, often using open profits from an earlier purchase(s). Eg, I bought Coca-Cola at 30 & bought more at 40.
Quote: The current price. To get a quote is to get the current price.
Record Date: Date on which a shareholder must own shares in order to receive the next dividend. Currently in the US, a stock goes ex-dividend 2 days before the record date. See also Ex-Dividend Date.
Relative Strength Index: Or RSI. A technical indicator developed by Welles Wilder. It functions as an overbought/oversold oscillator. In trending markets its often used to identify buying opportunities during corrections in uptrends or selling opportunities during corrections in downtrends. Also used to signal divergences. Works best in non-trending markets.
Resistance: A price level or range of prices at which a security stopped advancing in the past or is anticipated to stop advancing should it rise to that level in the future. Using price charts you can see at what price level(s) a security previously stopped advancing. These are the most likely levels of resistance to further price advances if price returns to those levels again. See also Support.
RSI: See Relative Strength Index.
Sell More: See Add.
Sell-stop: See Stop order.
Semi-numismatic: Coins which have a collector value in addition to underlying bullion value. Bullion coins have little numismatic value & numismatic coins have little bullion value.
Settle: To complete a securities transaction between broker & customer.
Short: Having sold & not yet covered/bought back. Eg, Im short 500 shares of Texas Instruments. Verb form indicates the action of selling. Eg, Im shorting the S&P 500. You sell short if you expect the price to fall.
Shorting-Against-The-Box: A short sale. So why the strange expression? Well, the box referred to is a safe-deposit boxyours. If near the end of a tax year you feel a certain stock you own might go down in price & ought to be sold but if you sell youll be hit with a big capital gains tax bill you dont want this year, you can short-against-the-box. You sell short the same number of shares as you hold in the box. Thus you lock-in a profit if the price does drop, but you havent actually sold your shares. At some later date, when you feel able to take the tax bite or you find it advisable for any reason, you simultaneously sell your shares & cover your short sales.
Short Squeeze: A situation in which traders who have sold short are forced to buy to cover their short positions. The amount of forced buying drives prices even higher than they would normally go & creates even more losses for the traders who are short, which in turn creates more buying.
Short-term: A subjective term indicating the shortest time period used in terms of investments. Usually refers to less than 6 months in stocks & 3 years in bonds. But in futures trading, can be less than 1 day. See also Long-term & Medium-term.
Slippage: The difference between the price stated in your order & the price at which you are filled. Slippage can occur in stop orders & MIT orders, but not price or stop-limit orders.
Soft commodities: Cocoa, Coffee, Orange Juice, Rubber, Sugar & Tea.
Spread: Simultaneous purchase & sale of 2 different securities & often future contracts.
Stochastics: A technical indicator that functions as an overbought/oversold oscillator. It consists of 2 lines (%K & %D). Based on the premise that when price is rising, it will tend to close near the high of the day on daily charts (but can be used on charts of any time period from 1-minute & up). For an advance to stop, it must first slow down. Thus a change in the momentum of an advance occurs before price reverses. Stochastics attempts to identify this change in momentum. Also used to signal divergences. Works best in non-trending markets.
Stock Split: Forward split: An increase in the number of shares of a corporation without any change in the shareholders equity. Usually done to make a stock more marketable by reducing its price. Eg, if XYZ stock is trading at 100 & does a 2/1 forward split, each shareholder will have twice as many shares with the stock now priced at 50. Reverse split: A decrease in the number of shares of a corporation without any change in the shareholders equity. Done to raise the price of a stock, usually to above the level of a penny stock.
Stop-Limit order: A particular type of Stop with Limit order (see below) in which the specified price & limit price are identical. It functions like a price order. Eg, Buy 3 Mar S&P 500s at 780-stop limit.
Stop-Loss order: A stop order that protects you from further loss by liquidation of your position at the market once the specific stop price is hit. Also called protective stop order or protective stop-loss order.
Stop order: A stop order is an order that becomes a market order once the stated price is reached. A stop order to sell (sell-stop) must be placed at a lower price than the market is at when the order is placed. A stop order to buy (buy-stop) must be placed at a higher price than the market is at when the order is placed. Eg, you place an order to sell 100 shares of Netscape at 50-stop. Once Netscape trades at 50 or lower, your stop order is activated & becomes a market order to be filled immediately at the best available price.
Stopped Out: Having a long position sold or a short position covered by the execution of a stop order.
Stop with Limit order: An order that becomes a market order once the specified stop price is hit, but that will not be filled at a worse price than the limit price specified. Eg, Sell 5 March Swiss Francs at 77-stop, 76.98-limit. That means when 77 is hit (reached) it becomes a market order. But in no event will you be filled at a worse price than 76.98. As with the price order, theres no guarantee you will be filled.
Strike Price: The stated price of an option at which the owner can buy the underlying security in the case of a call option or sell in the case of a put option. Eg, a Jan 110 Citicorp option has a strike price of 110.
Support: A price level or range of prices at which a security stopped declining in the past or is anticipated to stop declining should it drop to that level in the future. Using price charts you can see at what price level(s) a security previously stopped declining. These are the most likely levels of support if price returns to those levels again. See also Resistance.
T-Bill: See Treasury Bill.
T-Bond: See Bond.
Tax & Money Havens: Tax havens are countries or offshore jurisdictions where taxes are minimal or non-existent. They are islands of financial freedom or non-penalty colonies in a sea of tax Big Brotherism. But some tax havens arent politically or financially stable, & not safe places to store money. Money havens, on the other hand (eg, Switzerland), are private, secure & safe sanctuaries to store money, but may not be tax havens. The rarest & most valuable havens are those which are both tax & money havens.
Tax-Loss Selling: Selling of securities that are lower than the original purchase price to establish capital losses, especially to offset any capital gains.
Technical Analysis: One of the two broad categories of market analysis (other is fundamental), which is used to obtain indications of future price movements. It is primarily concerned with charts of price & volume (& open interest in the futures markets). There are many techniques applied to historical price charts, including pattern recognition (eg, Head & Shoulders, symmetrical triangle) moving averages, & oscillators (eg, RSI, Stochastics) amongst others. The underlying assumption in technical analysis is that anything that could affect a security or market is already reflected in the price of that security or market. The ultimate goal of a technician is to let the market via the price chart tell him or her which way price movement is most likely to occur in the future. See also Fundamental Analysis, Line & Bar, & Point & Figure.
Technical Indicator: Any index, average, oscillator, etc., used by a technical analyst that is constructed using price, time, volume or open interest.
Time Decay: Term used to describe the decreasing time value in an option. It is not a straight-line relationship.Time decay increases exponentially as the expiration date is approached. As a rule of thumb, time decay increases rapidly from 30 days before expiration to expiration. Therefore, as a general rule of thumb, to minimise the adverse effects of time decay when buying options, purchase options that have at least 2-3 months left before expiration. And, if long an option, sell it when the 1-month to expiration date is reached. If you still want to be in that market, its wiser to buy another option with more time left. If selling (writing) options, try to sell options with 30 days or less left before expiration so time decay works for you. Obviously, the more time left in the option, the more premium youll receive when selling, so the above is a guideline. There are other factors, especially the historical volatility of an option compared to current volatility, that also must be factored into any option buying/selling.
Time Value: The part of the price of an option that is due to the time remaining between the current date & the expiration date of the option. See also Intrinsic Value & Time Decay.
Transports: See Dow Jones Transportation Average.
Treasury Bill: Govt promissory note having a maturity of less than 1 year. Theyre sold at a discount so that the difference between the face value & purchase price is the interest received.
Treasury Bond: See Bond.
Trend: Basic direction of a market or security: up, down or sideways. However, timeframe must also be included because the long-term trend can be up, while the short-term trend is down & vice versa. Its the lack of inclusion of time that causes many disagreements about the trend of a market or security.
Trendline: A straight line drawn to connect significant high or low prices of a security or index. If the security is advancing the low prices are used to construct the line (uptrendline). If the security is declining, high prices are used to construct the line (downtrendline). The theory is that a violation of the trendline shows a change in trend. Eg, if price has been advancing & then drops below the trendline, it is a sign that a trend change from up to down may be imminent. The weakness in trendlines is the subjectivity of deciding which high or low prices should be used to connect the lines. This is one of many areas at which the art & science of technical analysis meet.
Trilateral Commission: Intl arm of CFR (see CFR) made up of global power brokers in finance & govt. Brainchild of David Rockefeller, head of CFR. Often called a secret govt.
2-Day Close: Abbreviation: 2dc. A stop-loss tactic which instructs liquidation of a position only on 2 consecutive closes below the stated stop price for long positions & above the stated stop price for short positions. An HSL invention.
UK: United Kingdom (Great Britain & Northern Ireland).
UN: United Nations. Created as successor to League of Nations in 1945, it currently has 184 member nations. Purpose is to maintain intl peace & security & to achieve cooperation in solving economic, social, cultural & humanitarian problems. In practice, UNs mandate is so broad & ill-defined that it has simply grown into a bloated, ineffective global bureaucracy badly in need of downsizing and redefinitionor total disbandment. Its a black hole for tax dollars & an ineffectual cure for most global problems.
Unable: Used to indicate that an order couldnt be filled/executed. Eg, Your order in the Bonds was unable.
Underlying Security: The security upon which a derivative (option, index, futures contract) or other security is based. Eg, an ASA option is based upon the price of ASA stock. The S&P 500 futures index is based upon the S&P 500 stock index.
UNESCO: UN Educational, Scientific & Cultural Organisation, whose aim is to promote collaboration among nations through education, science & culture.
Volatility: Term used to describe the size & frequency of price fluctuations of a security, index, etc. See also Beta.
World Bank: IBRD or Intl Bank for Reconstruction & Development, a UN agency. Funded by developed (rich) nations taxpayers, it provides loans & technical assistance for both govt & private economic projects in developing (poor) nations. Political correctness aside, its a 3rd world welfare agency. All World Bank member nations are required to be IMF (Intl Monetary Fund) members. Since World Bank & IMF are UN agencies duplicating most functions, they should merge to cut costs & bureaucracy.
Writing: Selling options. For every option someone buys, there has to be someone who sells an option. The seller is called the writer of the option. The seller is short the option because s/hes sold it & doesnt have it. Same principle as short-selling a stock or futures contract that you dont presently own.
WTO: World Trade Organisation. Successor organisation to GATT (General Agreement on Tariffs & Trade), its an intl forum designed to reduce world trade barriers. Unlike obsolete GATT, the 124-founding member WTO is not a UN agency & is permanent, not interim.
Yield: General term for the percentage return on an investment.
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