|
C Language
Widely used systems development language, also block-structured, but with more facilities to control the machine at the level of the hardware.
Cabinet Trade or Cab
A trade that allows options traders to liquidate deep out-of-the-money options by trading the option at a price equal to one-half tick.
Cadillac Plan
A benefit plan that provides business partners with additional or increased levels of life insurance protection. Also referred to as a Top-Hat Plan.
Calendar Day
Any day of the year, as opposed to a Business Day.
Calendar Spread
A spread consisting of one long and one short option of the same type with the same exercise price, but which expire in different months. Also, an options strategy that entails buying two options on the same security with different maturities. If the exercise price is the same (a June 50 call and a September 50 call) it is a horizontal spread. If the exercise prices are different (a June 50 call and a September 45 call), it is a diagonal spread. Investors gain or lose as the difference in price narrows or widens.
Call
An option contract giving the holder the right, but not the obligation, to buy a specified amount of an underlying security at a specified price within a specified time (e.g., one contract of IBM Jan $25; you have the right to buy 100 shares of IBM at $25 by the third Friday in January.) The act of exercising a call option.
Call Date
Refers to the date on which a bond may be redeemed before maturity. The investor purchasing a bond should be aware that he or she cannot count on interest on a bond beyond the call date because the issuer may redeem the bond on the call date if it is advantageous for them to do so.
Call Feature (Callable)
A feature that is usually attached to a preferred stock or a convertible bond, where the company that issues the security has the option to call back in all or part of the outstanding securities prior to the scheduled maturity date, and to pay your money to you at a predetermined amount and rate. (See also: Call Provision)
Call Option
Refers to the right, but not the obligation, to buy 100 shares of a particular stock, stock index, or futures at a predetermined price before a preset date in exchange for a paying a premium. The buyer does not have to invest as much money as they would have to in order to buy the stock or futures unless they exercise their call option. The seller of a call option makes extra income and does not have to give up the stock unless the option is exercised by the buyer.
Call Premium
The amount to be paid over and above the face value if the issuing corporation calls a security for redemption before maturity.
Callable
Refers to a bond that is redeemable by the issuer before the scheduled maturity of the bond. Issuer must pay the holders a premium price if such a security is retired early. Bonds are usually called when interest rates fall so significantly that the issuer can save money by floating new bonds at lower rates.
Calmar Ratio
Takes the average rate of return for the past 36 months and divides it by the maximum draw down for the same period. It is usually calculated on a monthly basis. A negative value for the Calmar ratio means that the system or trader had a negative performance over the past three years.
Canadian Depository for Securities Limited (CDS)
Agency responsible for the automatic processing and clearing of all securities transactions in Canada.
Canadian Derivatives Clearing Corp. (CDCC)
The clearing corporation which processes and guarantees settlement of stock, bond and index options traded on the Toronto Stock Exchange, the Montreal Exchange and the Vancouver Stock Exchange.
Cancel or Change Former Order (CFO)
An order that cancels or changes a customer's current order.
CAP (Bonds)
The highest-level rate that can be paid on a floating-rate debt instrument. A variable-rate note with a 10% cap would mean that the note could not yield more than 10% interest, regardless of how high interest rates rose.
CAP (Stocks)
A short form for capitalization, when used in reference to stocks. CAPs are determined by multiplying the total number of a corporation's outstanding shares by the price of the stock. Analysts classify the capitalization of companies as small, medium and large cap corporations and some mutual funds limit themselves to small, medium or large-cap companies for investment purposes.
Capital
The amount of money you have invested is called capital. When your investing objective is capital preservation, your priority is to try not to lose any money. When your objective is capital growth, your priority is to try to make your initial investment grow in value. Capital also refers to accumulated money or goods available for use in producing more money or goods.
Capital Appreciation
A rise in the market price of an asset.
Capital Asset
All tangible property, including securities, real estate and other property, held for the long-term.
Capital Asset Pricing Model (CAPM)
A widely used model that establishes how risky securities ought to be priced in financial markets. It distinguishes between systematic risk and unsystematic risk, and postulates that a security's expected returns ought to increase linearly with systematic risk. The line that expresses this relationship is called the security-market line, and systematic risk is measured by a security's beta coefficient.
Capital Cost Allowance
The depreciation expense allowed on an asset for tax purposes.
Capital Expenditures
Amount used during a particular period to acquire or improve long-term assets such as property, plant, or equipment.
Capital Gain
The profit realized when a capital asset is sold for a higher price than the purchase price. Your costs (when you buy) include the commission you paid your broker and are deducted from the proceeds when you sell. In a mutual fund, capital gains are created when the fund buys and sells securities. These gains are then distributed to shareholders at least annually. Shareholders can also earn capital gains by redeeming their units at higher prices than they originally paid.
Capital Gains Distribution
A distribution to investment company shareholders from net long-term capital gains realized by a regulated investment company on the sale of portfolio securities.
Capital Loss
The loss incurred when a capital asset is sold for a lower price than the purchase price.
Capital Market Line
Line relating expected returns to overall risk for all investments that can be formed by combining the riskless asset with market portfolio in various proportions.
Capital Markets
The places and institutions where long-term securities are traded. Such securities include long-term debt, preferred shares, and common shares.
Capital Stock
The total combined ownership interest of all the stockholders in a corporation as represented by the outstanding common and preferred shares of stock.
Capital Structure
Total dollar amount of all money invested in a company, such as debt, preferred and common shares, contributed surplus and retained earnings of a company. It can also be expressed as a percentage.
Capitalization (Stocks)
Refers to the current value of a corporation's outstanding shares in dollars. Capitalization is determined by multiplying the total number of outstanding shares by the price of the stock. Analysts classify the capitalization of companies as small, medium and large cap corporations and some mutual funds limit themselves to small, medium or large-cap companies for investment purposes.
Capped-style Option
A capped option is an option with an established profit cap or cap price. The cap price is equal to the option's strike price plus a cap interval for a call option or the strike price minus a cap interval for a put option. A capped option is automatically exercised when the underlying security closes at or above (for a call) or at or below (for a put) the option's cap price.
Capping
Placing selling pressure on a stock in an attempt to keep its price low or to move its price lower; this violates the NASD Rules of Fair Practice.
Cash Account
An account in which the customer is required by the SEC's Regulation T to pay in full for securities purchased not later than two days after the standard payment period set by the NASD's Uniform Practice Code.
Cash and Equivalents
The value of assets that can be converted into cash immediately, as reported by a company. Usually includes bank accounts and marketable securities, such as government bonds and Bankers' Acceptances. Cash equivalents on balance sheets include securities (e.g., notes) that mature within ninety days.
Cash Commodity
The actual physical commodity as distinguished from a futures commodity.
Cash Dividend
A dividend paid in cash to a company's shareholders out of the corporation's current earnings or accumulated profits. The amount is normally based on profitability and is taxable as income. A cash distribution may include capital gains and return of capital in addition to the dividend. The board of directors must declare all dividends.
Cash Flow
The money received by a business minus the money paid out. Cash flow is also equal to net income minus depreciation or depletion. In investments, it represents earnings before depreciation amortization and non-cash charges. Sometimes called cash earnings. Cash Flow from operations [called Funds From Operations (FFO) by real estate and other investment trusts] is important because it indicates the ability to pay dividends.
Certainty Equivalent
The amount of certain cash flow that one would accept as being the economic equivalent to an uncertain (risky) cash flow with a particular probability distribution.
Certificate
The physical piece of paper that is evidence of ownership of a stock.
Certificate of Deposit (CD)
A fixed-income debt security issued by most chartered banks, usually in minimum denominations of $1,000 with maturity terms of 1 to 6 years.
Chaikin Oscillator
The Chaikin Oscillator is created by subtracting a 10-period exponential moving average of the Accumulation/Distribution line from a 3-period moving average of the Accumulation/Distribution Line.
Change
1.For an option or futures contract, the difference between the current price and the previous day's settlement price.
2. For an index or average, the difference between the current value and the previous day's market close.
3. For a stock or bond quote, the difference between the current price and the last trade of the previous day
Changes in Financial Position
Sources of funds internally provided from operations, which alter a company's cash flow position: depreciation, deferred taxes, etc.
Channel
In charting, a price channel contains prices throughout a trend. There are three basic ways to draw channels: parallel, rounded and channels that connect lows (bear trend) or highs (bull trend).
Chaos Theory
Describes the behavior of nonlinear systems. A subset of nonlinear dynamics analysis, chaos theory is a branch of mathematics focusing on irregular and complex behavior that has an underlying order. In the stock market, chaos theory seeks to forecast the future path of stock prices, including sudden changes that occur during periods of intense market activity.
Chicago Board Options Exchange (CBOE)
The largest options exchange in the United States.
Chicago Board of Trade (CBOT)
The oldest commodity exchange in the United States; established in 1886. The exchange lists agricultural commodity futures such as corn, oats and soybeans, in addition to more recent innovations as GNMA mortgages and the NASDAQ 100 Index.
Chinese Wall
A descriptive name for the division within a brokerage firm that prevents insider information from passing from corporate advisers to investment traders, who could make use of the information to reap illicit profits.
Chi Square
A statistical test to determine if the patterns exhibited by data could have been produced by chance. The chi-square test with Yates's correction using two-way statistics for decline vs. advance is where: oj = actual observed frequency of test ej = expected or theoretical frequency of test.
Christmas Tree Spread
The simultaneous purchase and writing of options with either a different strike price or expiration date or combination of the two.
Churning
Excessive trading in a customer's account by a registered representative who ignores the customer's interests and seeks only to increase commissions; this violates the NASD Rules of Fair Practice.
Class A and B Stock
Names used by companies to distinguish between two classes of common stock. Class A stock may receive cash dividends while Class B may receive stock dividends. There also could be differences in voting rights or in priority of assets. The investor should review the terms of the class designation prior to purchase to understand the rights of that class of stock.
Class of Options
Option contracts of the same type (call or put) and Style (American, European or Capped) that cover the same underlying security.
Classifier Systems
In artificial intelligence, these systems perform a type of machine learning that generates rules from examples.
Clearing House
An institution established separately from the stock exchanges that ensures the payment and delivery of stock between investment dealers in a timely, cost-efficient manner. For example, an investment dealer may execute 10 trades (buys and sells) in the same security on the same day. Through the clearing house, the dealer just settles the difference in the number of shares and the difference in money owed or received.
Close
1. The price of the last transaction for a particular security on a particular day.
2. The mid-price of a closing trading range.
Closed-end Investment Company
An investment company that issues a fixed number of shares in an actively managed portfolio of securities. The shares may be of several classes; they are traded in the secondary marketplace, either on an exchange or over the counter. The market price of the shares is determined by supply and demand and not by net asset value.
Closed Trades
Positions that have been either liquidated or offset.
Closing Purchase
A transaction in which the purchaser's intention is to reduce or eliminate a short position in a stock or in a given series of options.
Closing Range
The high and low prices, or bids and offers, recorded during the period designated as the official close.
Closing Sale
A transaction in which the seller's intention is to reduce or eliminate a long position in a stock or a given series of options.
Coefficient
A constant used to multiply another quantity or series; as in 3x and Ax, 3 and A are coefficients of x.
Coefficient of Determination R-squared
The proportion of the variation in the data explained by the model.
Coincidence
In Gann theory, a projected reversal point.
Collateral Trust Bond
A bond secured by stocks or bonds of companies controlled by the issuing company, or other securities, which are deposited with a trustee.
Combined Forecast
The weighted average of two or more forecasts.
Comfort Letter
A letter filed with the applicable securities commissions by a company's auditor when submitting unsigned financial statements for use in a prospectus. The letter says that the final format of the statements should not be materially different from those attached to the letter. The letter is required because the auditor does not sign the report until the final prospectus is prepared for distribution. The signing is done after the securities commissions have reviewed the prospectus and any required changes have been made.
Commercial Bank
An institution that is in the business of accepting deposits and making business loans. Commercial banks may not underwrite corporate securities or most municipal bonds. (See also: Investment Banker)
Commercial Paper
An unsecured, short-term promissory note issued by a corporation for financing accounts receivable and inventories. It is usually issued at a discount reflecting prevailing market interest rates. Maturities range up to 270 days.
Commission
A service charge assessed by an agent in return for arranging the purchase or sale of a security. Commissions represent a fixed or percentage charged on the value of a transaction. This money goes to the broker and his/her investment company for providing services. A commission must be fair and reasonable. In 1975, deregulation led to the creation of discount brokers, who charge lower commissions than full service brokers. Full service brokers offer advice and usually have a full staff of analysts who follow specific industries. Discount brokers simply execute a client's order and usually do not offer an opinion on a stock.
Commodity
Any bulk good traded on an exchange or in the cash market; examples include metals, grains and meats.
Commodity Channel Index (CCI)
The CCI is a timing system that is best applied to commodity contracts that have cyclical or seasonal tendencies. CCI does not determine the length of cycles. It is designed to detect when such cycles begin and end through the use of a statistical analysis which incorporates a moving average and a divisor reflecting both the possible and actual trading ranges. Although developed primarily for commodities, the CCI could conceivably be used to analyze stocks as well.
Commodity Futures Trading Commission
The CFTC was created by the Commodity Futures Trading Commission Act of 1974 to ensure the open and efficient operation of the futures markets. The 5 futures markets commissioners are appointed by the President (subject to Senate approval). This government agency currently regulates the nation's commodity futures industry.
Commodity Selection Index
The Commodity Selection Index is related to the Directional Movement Index. Whereas the ADXR plot of the DMI is used to rate contracts from the longer term, trend-following point of view, the CSI is used to rate items in the more volatile short term. The Commodity Selection Index takes into account the ADXR from the Directional Movement Index, the Average True Range, the value of a one-cent move as well as margin and commission requirements. The higher the CSI rating, the more attractive an item is for trading.
Common Stock or Common Share
A security that represents ownership in a corporation, entitling the owner to voting rights and dividends. Holders of common stock exercise control by electing a board of directors and voting on corporate policy.
Common Stock / Other Equity
Value of outstanding common shares at par, plus accumulated retained earnings. Also called shareholders' equity.
Comparative Relative Strength
Compares the price movement of a stock with that of its competitors, industry group or the entire market. This is distinct from J. Welles Wilder's Relative Strength Index, which compares current price movement to previous price movement of the same instrument.
Compliance Department
The department within a brokerage firm that oversees the trading and market-making activities of the firm. It ensures that the employees and officers of the firm are abiding by the rules and regulations of the SEC, exchanges and SROs.
Compound Interest
Interest earned on an investment at periodic intervals and added to the original amount of the investment. Future interest payments are then calculated and paid at the original rate but on the increased total of the investment. This is really interest paid on interest.
Computer Assisted Trading System
An electronic trading system developed by the Toronto Stock Exchange that allows traders anywhere in the world to trade stocks listed on the exchange.
Condor
The sale (purchase) of 2 options with consecutive exercise prices, together with the purchase (sale) of 1 option with an immediately lower exercise price and 1 option with an immediately higher exercise price. This spread can be done as a calendar spread using the same expiration months.
Confidence Factor
A measure of the degree of likelihood that a rule is correct, which may reflect the percentage of times that it has proven to be correct in the past or just a subjective measure of our confidence in its degree of reliability.
Confidence Indicator
A measure of investors' faith in the economy and the securities market. Many technical analysts consider a low or deteriorating level of confidence as a bearish sign.
Confidence Level
The degree of assurance that a specified failure rate is not exceeded.
Confirmation
The written statement that follows any trade in the securities markets. Confirmation is issued immediately after a trade is executed. It spells out settlement date, terms, commission, etc. Also called a contract, it acknowledges the details of a sale or purchase of a security, which is normally mailed to a client by the investment dealer within 24 hours of an order being executed.
Congestion Area or Pattern
A series of trading days in which there is no visible progress in price.
Conglomerate
A diversified firm whose operations in various divisions or subsidiaries are unrelated to each other.
Conservative
Tends to focus more on price stability or income as an investing priority than on increasing the value of the original investment. As a result, conservative investments involve less investment risk.
Consolidation
A pause that allows participants in a market to reevaluate the market and sets the stage for the next price move.
Constrained Share Companies
Canadian banks, trust, insurance, broadcasting and communication companies have limits on the number of shares or percentage of shares owned by people who are not Canadian citizens or residents. Foreign ownership is restricted.
Consumer Price Index (CPI)
A measure of price changes in consumer goods and services used to identify periods of inflation or deflation. It monitors the price of a basket of goods to establish the general direction of prices in an economy.
Contingent Deferred Sales Load
The charge or fee an investor pays when withdrawing money from an investment. Most commonly occurring with mutual funds and annuities, the contingent deferred sales load is designed to discourage withdrawals. Typically, contingent deferred sales loads decline for each year a shareholder remains in a fund.
Continuation Chart
A chart in which the price scale for the data for the end of a given contract and the data for the beginning of the next contract are merged in order to ease the transition of one contract to the next.
Continuous Disclosure
A securities issuer must issue a press release as soon as a material change occurs in its affairs and within ten days for any other changes in the company.
Contract
Unit of trading for a financial or commodity future. Also, actual bilateral agreement between the parties (buyer and seller) of a futures or options on futures transaction as defined by an exchange.
Contract Month
The month in which futures contracts may be satisfied by making or accepting delivery.
Contraction
A period of general economic decline, one of the four stages of the business cycle.
Contrarian Approach
Trading against the majority view of the marketplace. A contrarian is said to fade the trend.
Contributed Surplus
Part of shareholders' equity which originates from sources other than earnings, such as the initial sale of stock above par value.
Conversion Arbitrage
Traders buy and sell two different securities (or synthetic securities), forcing equivalent prices for equivalent securities.
Conversion Ratio
The number of common shares to be received in exchange for a convertible security (debt or preferred shares).
Convertible Bond
The term 'convertible' means that the first set of securities (i.e., the Convertible Bond) is exchangeable into another type of security, usually common stock of the same company as stipulated by the terms of the conversion privilege. Most convertible securities are debt or preferred shares that can be converted into common shares.
Convertible Security
A bond, debenture or preferred share which may be exchanged by the owner, usually for the common stock of the same company.
Convertibles are attractive to investors as they provide the security and income of a bond, debenture or preferred share, as well as the opportunity to participate in the growth of the company through converting to common shares.
Coppock Curve
A long-term price momentum indicator: a 10-month weighted moving average of the sum of the 14-month rate of change and the 11-month rate of change for the DJIA.
Corner a Market
To purchase enough of the available supply of a commodity or stock in order to manipulate its price.
Corporation
The most common form of business organization, in which the total worth of the organization is divided into shares of stock, each share representing a unit of ownership. A corporation is characterized by a continuous life span and the limited liability of its owners.
Correction
A market correction is usually a sudden temporary decline in stock or bond prices after a period of market strength. A 10% movement on the downside that lasts no longer than six months is a normal correction.
Correction Wave
A wave or cycle of waves moving against the current impulse trend's direction.
Correlation Coefficient
When two random variables X and Y tend to vary together. The measurement is given by the ratio of the covariance of X and T to the square root of the product of the variance of X and the variance of Y.
Correlogram
A numerical and graphical display of the test statistics of an autocorrelation diagnostic routine.
Cost of Capital
The effective after-tax cost of raising new funds. Because the cost of capital varies with the source of funds employed, the overall cost of capital for a firm that raises funds from various sources is a weighted average of the various costs.
Countermove
A price bar showing movement opposite to the direction of the prior time period; a retracement.
Coupon
Refers to the physical piece of paper that can be attached to a bond that pays the interest. When these coupons are removed from bonds they create strip bonds and coupons. People can purchase the coupons as an investment to receive a set amount of income for a specific amount of time.
Coupon Bond
A debt obligation with coupons representing semi-annual interest payments attached; the coupons are submitted to the trustee by the holder to receive the interest payments. No record of the purchaser is kept by the issuer, and the purchaser's name is not printed on the certificate.
Covariance
Multiplies the deviation of each variable from its mean, adds those products and then divides by the number of observations.
Cover
Buying a security that you had previously sold short.
Covered Call
A term used to describe the situation that exists when an option writer already owns shares and can therefore turn them over to the option buyer, without having to go to the market to purchase them first.
Covered Option
An option contract backed by the shares underlying the option. An option is covered when the person who owns stock sells call options in that stock since if the price goes up, the seller is in a position to deliver the stock to the buyer without going to the market first.
Covered Put
A put option position in which the option writer also is short the corresponding stock or has deposited, in a cash account, cash or cash equivalents equal to the exercise of the option. This limits the option writer's risk because money or stock is already set aside. In the event that the holder of the put option decides to exercise the option, the writer's risk is more limited than it would be on an uncovered or naked put option.
Covered Write
Writing a call against a long position in the underlying stock. By receiving a premium, the writer intends to realize additional return on the underlying common stock or gain some element of protection (limited to the amount of the premium less transaction costs) from a decline in the value of that underlying stock.
Crack Spreads
The spread between crude oil and its products: heating oil and unleaded gasoline plays a major role in the trading process.
Credit Rating
A rating, assigned by a recognized credit rating agency such as Standard & Poor's or Moody's, that reflects a corporation's ability (its "creditworthiness") to repay its obligations and the issued security's credit quality.
Credit Risk
The risk of loss one assumes under a financial contract that a borrower or a counterparty to a derivatives contract may default or fail to perform its obligations.
Cross on the Board
When an investment dealer has both an order to sell and an order to buy the same stock at the same price, the transaction is allowed without interfering with the limits of the prevailing market.
Cross Rate
The current exchange rate of a combination of currencies (i.e., Japanese Yen/British Pound).
CTI2 Market
Profile terminology for commercial clearing members, as opposed to CTI1, local floor traders.
Cum Dividend
Literally, 'with dividend.' The buyer of the stock will receive the next dividend payment declared that has not been paid.
Cum Rights
This means 'with rights.' Buyers of shares quoted cum rights are entitled to forthcoming rights.
Cumulative Dividend
This is a feature that allows for unpaid dividends to accumulate if a company has missed a dividend payment. This usually occurs because of financial difficulties. If and when a company is in shape to pay dividends again, it will have to pay all back dividends before it can start again.
Cumulative Preferred
A preferred stock which has a provision that if one or more of its dividends are omitted, these unpaid dividends accumulate and must be paid before any dividends may be paid on the company's common shares.
Cup and Handle
An accumulation pattern observed on bar charts. The pattern lasts from 7 to 65 weeks; the cup is in the shape of a 'U' and the handle is usually more than 1 or 2 weeks in duration. The handle is a slight downward drift with low trading volume from the right-hand side of the formation.
Current Assets
Value of cash, accounts receivable, inventories, marketable securities and other assets that could be converted to cash in less than 1 year.
Current Liabilities
Amount owed for salaries, interest, accounts available and other debts due within 1 year.
Current Ratio or Working Capital Ratio
Current assets of a business divided by current liabilities, thus measuring how much the value of current assets exceeds its liabilities. This is one of the tests to determine how much cash a company has on hand to cover its current liabilities.
Current Return or Yield
The annual rate of return on a security, calculated by dividing the interest or dividends paid by the security's current market price.
Current Yield (Bonds)
Refers to the annual interest on a bond divided by the market price of that bond. The current yield is the actual income rate of return as opposed to the coupon rate or the yield to maturity.
Curve
The continuous image of the unit interval.
Curve-Fitting
Developing complicated rules that map known conditions.
Cutler's RSI
Cutler's RSI is a slight variation of Welles Wilder's original Relative Strength Index. The RSI is a momentum oscillator used to identify overbought and oversold conditions by keying on specific levels, generally 30 and 70, on a chart scaled from 0 to 100. The study can also be used to detect the following:
1. Movement that might not be as readily apparent on the bar chart
2. Failure swings above 70 or below 30, which indicate reversals
3. Support and resistance
4. Divergences between RSI and price
Cutoff Frequency
A point where higher frequency cycles will not pass through a filter (e.g., a 10-day SMA will eliminate cycles of 20 days or less).
Cycle
A variation where a point of observation returns to its origin.
Cyclical Companies
Those companies that tend to follow overall economic cycles. They report strong earnings when the overall economy is doing well and weaker earnings when the economy is in recession.
Cyclical Industry
A fundamental analysis term for an industry that is sensitive to the business cycle and price changes. Most cyclical industries produce durable goods such as raw materials and heavy equipment.
Cyclical Stock
A stock that is particularly sensitive to swings in economic conditions.
|
