Stock Market Vocabulary

private corporation

A corporation that doesn't sell shares to the public. You cannot buy shares of a private company in the stock market.

record date

A date set by the company on which an individual must own shares to be eligible for dividends.

savings account

A deposit account at a bank or similar institution that earns interest.

industry

A group of companies producing similar products or services.

industry

A group of companies that make the same products, i.e. pharmaceutical companies

sector

A group of stocks, often in one industry. The performance of any single stock in a sector can be measured against the performance of the group. Pharmaceutical companies are considered in the health care sector for example.

entrepreneur

A person who organizes, operates, and assumes the risk for a business venture.

401 (k)

A retirement savings plan funded by employee contributions and (often) matching contributions from the employer. Contributions are taken from pre-tax salary and the funds grow tax-free until withdrawn.

annual report

By law, each publicly held corporation must provide its shareholders with an annual report showing its income and balance sheet. In most cases, it contains not only financial details but also a message from the chairman, a description of the company's operations, and an overview of its achievements.

Dow Jones Industrial Average

Commonly referred to as the Dow, it is an index of 30 large well known companies

Standard & Poor's 500

Commonly referred to as the S&P 500, it is an index of 500 largecap stocks.

interest rate

Compensation paid or to be paid for the use of money. Interest is generally expressed as a percentage rate. (Also referred to as coupon rate)

distribution date

Date on which the dividend payment is made.

default

Failure to pay principal or interest when due. Defaults can also occur for failure to meet non-payment obligations, such as reporting requirements, or when a material problem occurs for the issuer, such as a bankruptcy.

earnings growth rate

How quickly in percentage terms a company is growing their earnings from year to year.

shareholder

If you own stock in a corporation, you are a shareholder of that corporation.

volatility

Indicates how much and how quickly the value of an investment, market, or market sector changes.

IPO

Initial Public Offering; the initial sale of stock to the public by investment bankers.

compound interest

Interest added to a principal at regular intervals so that each subsequent interest calculation is based on the original principal and the added interest. For example, if you have $100 in a savings account that pays 5 percent interest; with interest you receive 5 percent interest or $5 once—at the end of the year. If your bank pays compound interest each month, you will have $105.12 at the end of the year.

simple interest

Interest calculated at regular intervals solely on principal. For example, if you have $100 in a savings account that pays 5 percent interest annually at the end of 3 years you would have earned $115.

index

Is a statistical measure of the changes in a portfolio of stocks representing a portion of the overall market. It is a sample meant to represent the performance of the whole.

listing requirement

Listing requirements are the standards a corporation must meet to have its stock or bonds traded on a particular exchange. Exchanges set their own initial and continuing listing requirements. Among the listing criteria are a corporation's pretax earnings, a minimum market value, and a minimum number of existing shares.

spin-offs

Occurs when an existing publicly owned company sells a part of its assets or distributes new shares in order to create a new public company.

merger

Occurs when two or more companies combine into one company while all the parties involved mutually agree to the terms of the merger.

dividend

Part of a company's profits (earnings) that it pays as money to stockholders.

fixed-income investments

Pay interest on a set schedule. Fixed-Income Investments include corporate, municipal, agency, and U.S. Treasury bonds.

common stock

Shares of a company that do not guarantee a dividend and have more risk and volatility than preferred shares. Common stock holders have the benefit of providing shareholders with the right to vote for the board of directors as well as on issues that come before the board at the annual meeting of shareholders.

preferred stock

Shares of ownership of a company in which the share holder is guaranteed a dividend if one is declared and whose shares are usually not as volatile as common stock. Preferred stock holders do not have voting rights in company elections and decisions.

investor

Someone who risks funds by purchasing financial products with the hope the investments will increase in value over time.

diversification

Spreading investment funds through a variety of savings and investments to reduce risk.

p/e ratio

Stands for price-to-earnings ratio. The P/E is the relationship between a company's earnings and its share price. It is calculated by dividing the current price per share by the earnings per share.

cyclical stocks

Stocks of companies whose performance tends to mirror the economy. When the economy grows the stocks turn up, and when the economy falters the stocks fall. Automobile and housing sectors are good examples.

earnings

The amount of money that remains after subtracting the company's expenses from its revenue

risk

The chance of losing all or part of an investment.

maturity

The date when the principal amount of a security is payable

trade date

The date when the purchase or sale of a bond is transacted.

principal

The face amount of a bond, payable at maturity (also referred to as face or par value)

interest

The fee charged for using another's money or credit. It is expressed as a percentage rate over a period of time. For example, "My bank now pays 5 percent interest per year on my savings account."

volume

The number of shares traded in a company's stock. Unusual market activity, either higher or lower than average, is typically the result of some external event.

par value

The principal amount of a bond or note due at maturity.( also referred to as face value)

yield

The rate of return on an investment paid in dividends or interest and expressed as a percent.

public corporation

The stock of a public company is owned and traded by individuals and institutional investors. In contrast, the stock is held by company founders, employees, and sometimes venture capitalists.

prepayment

The unscheduled partial or complete payment of the principal amount outstanding on a mortgage or other debt before it is due.

market capitalization

This is the market value of a company's stock.

high-yield bonds

To attract investors, the issuers of these bonds pay a higher rate of interest than investment grade bonds with the same maturity. They are rated below investment grade bonds and are also called "Junk Bonds."

consensus

To reach team agreement on a decision.

net income

Total earnings after all expenses and taxes have been paid.

profit

What remains after subtracting a company's costs from its revenue. Profit is a company's reward for taking a risk and successfully producing what people want to buy at prices they are willing to pay.

profit

What remains after subtracting a company's expenses from its revenue. Profit is a company's reward for taking a risk and successfully producing what people want to buy at prices they are willing to pay.

earnings

Whatever profits or net income remains after subtracting the company's expenses from its revenue; a company's profit.

reverse action

When a company decreases the number of outstanding share thereby increasing the price per share. It does not affect the company equity

stock splits

When a company divides each of the outstanding shares of a company thereby lowering the price per share. It does not affect the company's equity

corporate action

When a public company initiates an action that will bring a change to its stock.

buyout

When the majority of a company's shares of stock (controlling interest) are bought.

management buyout

When the management of a corporation buys the controlling shares in the company.

invest

When you invest you become part owner in a company or loan a government agency money with the expectation of earning more money.

stock exchange

Where brokers gather to buy and sell stocks and other securities. The term is also used more broadly to include electronic trading that takes place over computer and telephone lines. In fact, in many markets around the world, all stock trading is handled electronically.

Rate of Return

Your annual income on an investment.

company

A business or association usually formed to manufacture or supply products or services for profit.

beta number

A calculation that helps measure the level of risk in investing in a stock.

portfolio

A collection of investments owned by one individual or organization.

corporation

A company legally separate from stockholders who own it and the managers who run it.

partnership

A company owned and managed by two or more people who share its profits or losses. A partnership is not separate from its owners, who are liable for the company's debts.

sole-proprietorship

A company owned and run by one individual who receives its profits or bears its losses. A proprietorship is not separate from its owner, who is liable for the company debts.

private company

A company that is owned by a person, family, or small group of investors that does not sell shares of stock in the company to the public.

public company

A company that is owned by investors who buy shares of stock, partial ownership of the assets of a business, in the corporation usually through one of the stock exchanges.

share

A share is a unit of ownership in a corporation or mutual fund.

Certificate of Deposit (CD)

A special form of deposit offered by banks that generally pays compound interest for a fixed period of time.

Money Market Account

A special savings account that usually pays interest rates comparable to those offered by money market mutual funds. These accounts also offer check-writing privileges.

principal

A sum of money owed as a debt or placed in a savings instrument, on which interest is calculated.

stock

A type of security that signifies ownership in a corporation and represents a claim to a part of the company's profits or losses. Companies usually issue stock to raise money for a variety of reasons, including expanding or modernizing their operations.

brokers

Acting for buyers compete against each other on the exchange floor, as brokers acting for sellers do, to get the best price. While the trading can be quite intense, it is orderly because the participants adhere to exchange rules

issuer

An entity which issues and is obligated to pay principal and interest on a debt security.

shareholder

An individual or company (including a corporation) that legally owns one or more shares of stock in a stock company. The shareholders are the owners of a corporation.

Individual Retirement Account (IRA)

An individual retirement account (IRA) allows a person, whether covered by an employer-sponsored pension plan, 401 (k) or not, to save money for use in retirement, deferring taxes on the account's earnings until the person begins to withdraw from the account. Funds in an IRA may be invested in a broad variety of investment vehicles.

Stock Market Game

An investment education program with applications for teaching core academic subjects such as math, English Language Arts, economics, social studies, technology, and business.

diversification

An investment strategy in which you spread your investment dollars among industry sectors.

risk tolerance

An investor's ability to accept loss of some or all of the money he or she has invested, based on a number of factors including age, financial stability, amount of time before the invested funds are needed for other purposes, etc.

growth stocks

Are stocks that attract investors by their potential for growth and higher stock prices (most times by reinvesting their earnings). They offer small or no dividends.

income stocks

Are stocks that tend to have a history of regular dividends that are the essential element in the stock's return to investors

auction market

Auction market trading (sometimes known as open outcry) is the way the major exchanges, such as the New York Stock Exchange (NYSE) and the Chicago Mercantile Exchange (CME), have traditionally handled buying and selling.

bid price

Bid is the price a market maker or broker offers to pay for a security.

investment grade bonds

Bonds that are sold by a very reliable issuer, the government, a large corporation, or a government agency that is most likely to repay the loan and the interest as promised.

liquidation

Process by which assets of a business are converted to money.

SMG Portfolio

Record of investments and their current value, history of investments with prices of sales, cash on hand, and money borrowed.

mid-cap

Refers to companies with market caps between 500 million dollars and five billion dollars.

small-cap

Refers to companies with market caps less than 500 million dollars.

large-cap

Refers to companies with market caps of five billion dollars and higher.

index

Reports changes, usually expressed as a percentage, in a specific financial market. Each index measures the market from a specific starting point. Some indexes are: Dow (NYSE), S&P 500 (NYSE), Russell (NASDAQ), etc.

revenue

Revenue is the money collected for providing a product or service.