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Paper
A short-term negotiable debt security or promise to pay.
Paper Profit
A profit on a security that has not been taken. Paper profits become realized profits only when the security is sold. A paper loss is the opposite of this. An example of a paper profit would be the purchase of ABC at $25. It is now trading at $27, so the paper profit is $2 per share.
Paper Trading
The ability to simulate a trade without actually putting up the money for the purpose of gaining additional trading experience. A paper trail recording all simulated trades.
Par
The stated or "nominal" value of a bond (typically $1,000) that is paid to the bondholder at maturity. Also represents the dollar amount on which interest is calculated, based on a specific percentage. For an equity security, par is usually a small dollar amount that bears no relationship to the security's market price.
Par Exchange Rate
Refers to the ratio of one country's currency unit to that of another country's currency unit as defined by the official exchange rates between the two countries. The par exchange rate is also known as: par value of currency and par of exchange. Par exchange rates have been allowed to float since 1971, which means that currency values are being determined by forces of supply and demand and the buying and selling by countries of their own currencies in order to stabilize the market value. This is a form of pegging.
Parabola
The U-shaped curve in the plane given by the equation of the parabolic form.
Parabolic (SAR)
The Parabolic is a time/price system for the automatic setting of stops. The stop is both a function of price and of time. The system allows a few days for market reaction after a trade is initiated after which stops begin to move in more rapid incremental daily amounts in the direction the trade was initiated. For example, when a long position is taken the stop will move up regardless of price direction. However, the distance that the stop moves up is determined by the favorable distance the price has moved. If the price fails to move favorably within a certain period of time, the stop reverses the position and begins a new time period.
Parameter
A variable, set of data, or rule that establishes a precise format for a model.
Pareto's Law
A law that states that 80% of results come from 20% of the effort.
Pari Passu
This means "in equal proportion." It usually refers to equally ranking issues of a company's preferred shares.
Parity
In an exchange market, a situation in which all brokers bidding has equal standing and the winning bid is awarded by a random drawing.
Participating Feature
A feature on some preferred shares that provide for extra dividend payments if corporate earnings or dividends per common share exceed some given amount.
Partnership
A form of business organization in which two or more individuals manage the business and are equally and personally liable for its debts.
PASCAL
Block-structured programming language developed originally as an aid to instruction, now widely used for applications development.
Passive Income
Earnings derived from a rental property, limited partnership or other enterprise in which the individual is not actively involved. Passive income therefore does not include earnings from wages or active business participation, nor does it include income from dividends, interest and capital gains.
Passive Loss
A loss incurred through a rental property, limited partnership or other enterprise in which the individual is not actively involved. Passive losses can be used to offset passive income only, not wage or portfolio income. (See also: Passive Income)
Payment Date
The date on which a declared stock, dividend or a bond interest payment is scheduled to be paid.
Pegging
Stabilizing a country's currency through its purchase or sale by the country's central bank.
Penny Stock
Generally speaking any stock that is trading for less than $5.00. They are considered to carry more risk than other stocks, but are also seen as to carry more potential.
Perceived Risk
The theoretical risk of a trade in a specific time frame.
Percentile
A value on a scale of one hundred that indicates the percent of a distribution that is equal to or below it.
Perceptron
A pattern-recognition machine, based on an analogy to the human nervous system, capable of learning by means of a feedback system that reinforces correct answers and discourages wrong ones.
Performance Based
A system of compensation in which a memory manager or broker receives fees based on their performance in the marketplace (i.e., % of profits earned).
Performance Bond
Previously referred to as margin, these are funds that must be deposited as a performance bond by a customer with his or her broker, by a broker with a clearing member, or by a clearing member, with the Clearing House. The performance bond helps to ensure the financial integrity of brokers, clearing members and the Exchange as a whole.
Performance Bond Call
A demand for additional funds because of adverse price movement.
Phantasmic Growth
Contrived growth in earnings per share that a firm may achieve through merging with firms whose shares trade at lower price/earnings ratios.
Phase Delay
The time lag that a filter falls behind the pre-filtered data.
Phone Switching
In mutual funds, the ability to transfer shares between funds in the same family by telephone request. There may be a charge associated with these transfers. Phone switching is also possible among different fund families if the funds are held in street name by a participating broker/dealer.
Piggy Back Warrants
Some warrants entitle the holder to acquire shares plus additional warrants at a later date. The warrants that are received upon the exercise of the initial warrants are known as piggyback warrants.
Pivot
Price level established as being significant by the market's failure to penetrate it or as being significant when a sudden increase in volume accompanies the move through the price level and an upcoming trend reversal ensues.
Point & Figure Charts
The Point and Figure (PF) charting method is a technique has been used for many years in analyzing the variations in prices of stocks and commodities. There are several types of PF charting methods. Some employ trend lines, resistance levels, and various other additions to the chart. In this study, we shall be concerned with only daily reversal type charts. The principal advantage of a PF chart is that it is much easier to read and interpret than other types of charts. All the small, and often confusing, price movements are eliminated, and only the most important features of the price action remain. It would be reasonable to think of this method as a filter that (hopefully) allows only meaningful information to enter the chart. Two basic symbols are used: X denotes the continuance of an increase in price and is always "stacked" in the vertical direction; O denotes the continuance of a decrease in price and is always "stacked" in the vertical direction. While prices are rising Xs are used. When falling, Os are used.
Points
Points apply to security prices. In the case of shares, one point indicates $1.00 per share. For bonds and debentures, one point means 1% of par value. Par value is almost universally 100 for bonds.
Point Spread
The price movement required for a security to go from one "full point" level to another (i.e., stock goes up or down $1).
Poison Pill
A corporate provision to combat hostile takeovers. When triggered, the poison pill allows shareholders to acquire additional shares at below market price, thereby increasing the number of shares outstanding and making the takeover prohibitively expensive. Such plans are relatively new in corporate Canada and are the subject of some controversy regarding whom they are designed to protect-the shareholders or the management.
Pooling of Interest
This occurs when a company issues treasury shares for the assets of another company so that the latter becomes a division or subsidiary of the acquiring company. Subsequent accounts of the parent company are set up to include the retained earnings and assets at book value (subject to certain adjustments) of the acquired company.
Portfolio
A collection of investments owned by an investor, an institution or a mutual fund.
Portfolio Insurance
A method of hedging a portfolio of common stocks against market risk by selling stock index futures short. Institutional investors frequently use the technique.
Portfolio Manager
The entity responsible for investing a mutual fund's assets, implementing its investment strategy and managing day-to-day portfolio trading.
Portfolio Theory
Theory concerned with the formation of optimal or efficient portfolios of risky securities.
Position
The total of a trader's open contracts. The amount of a security either owned (a long position) or owed (a short position) by an individual or by a dealer. Dealers take long positions in specific securities to maintain inventories and thereby facilitate trading.
Position Delta
The sum of all positive and negative deltas in a hedged position.
Position Limit
The maximum number of open contracts in a single underlying instrument.
Pre-emptive Right
The right that gives existing shareholders the option to purchase any new offerings of common stock, or of securities convertible into common stock, on a preferential basis.
Preferred Stock or Share
An equity security that represents ownership in a corporation. It is issued with a stated dividend, which must be paid before dividends are paid to holders of common stock. It generally carries no voting rights. Such stock ranks ahead of common stock, and after the debenture holders, on the dissolution of a company. These kind of securities show ownership in a corporation and gives the holder a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most preferred stock pays a fixed dividend, stated in a dollar amount or as a percentage of par value.
Premium
1. The amount of cash that an option buyer pays to an option seller.
2. The difference between the higher price paid for a security and the security's face amount at issue.
Premium Waiver
A clause in an insurance policy that promises all policy premiums will be waived if the policyholders becomes seriously ill or disabled, whether temporarily, long-term or permanently, and is thus unable to pay the premiums. All policy benefits remain in effect during the waiver period.
Preprocessing
Altering data to some extent to be more accurately analyzed; smoothing, reducing unwanted data, removing trend. Processing data is mathematically transforming the data from one form into another with the goal of amplifying the pertinent information.
Present Value
The current economic equivalent of a future dollar amount. It is derived by discounting the future amount at a rate that reflects the time value of money.
Prewhitening
Removing the bulk of first, second and possibly third order autocorrelations using non-linear regression.
Price
Price of a share of common stock on the date shown. Highs and lows are based on the highest and lowest intra-day trading price.
Price/Book Ratio
Compares a stock's market value to the value of total assets less total liabilities (book). Determined by dividing current price by common stockholders' equity per share (book value), adjusted for stock splits. Also called Market-to-Book.
Price/Earnings Ratio (P/E)
A tool for comparing the prices of different common stocks by assessing how much the market is willing to pay for a share of each corporation's earnings. It is calculated by dividing the current market price of a stock by the earnings per share.
Price/Earnings Ratio Equation
Assume XYZ Co. sells for $25.50 per share and has earned $2.55 per share this year: $25.50 = 10 times $2.55, therefore XYZ stock sells for 10 times earnings.
Price Patterns
Price Patterns are formations that appear on commodity and stock charts that have shown to have a certain degree of predictive value. Some of the most common patterns include: Head & Shoulders (bearish), Inverse Head & Shoulders (bullish), Double Top (bearish), Double Bottom (bullish), Triangles, Flags and Pennants (can be bullish or bearish depending on the prevailing trend).
Price/Sales Ratio
Determined by dividing stock's current price by revenue per share (adjusted for stock splits). Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares outstanding.
Price Stability
Price stability protects the original dollars you put into an investment. A mutual fund's price stability is seen in changes in its net asset value (NAV) over time.
Prime Rate
The interest rate that commercial banks charge their prime or most creditworthy customers, generally large corporations.
Primary Offering or Primary Market
The original sale of any new issue of a company's securities. The first buyer of a newly issued security buys that security in the primary market. All subsequent trading of those securities is done in the secondary market.
Principal
The purchase price of a bond on which interest is earned, and which represents the amount due to the investor at maturity.
Prior Preferred
A preferred stock that in the liquidation of the issuing company would rank ahead of other classes of preferred shares as to asset and dividend entitlement.
Private Company
A company that issues private stock and is not publicly traded.
Private Placement
The underwriting of a security and its sale to a few buyers, usually institutional, and in larger amounts.
Probability Density Function
A graph showing the probability of occurrence of a particular data point (price).
Profit
That which is left over for the owners of a business after all expenses have been deducted from the revenues of a firm. Gross profit is the profit before corporate income taxes. Net profit is the final profit of the firm after all deductions have been made.
Profit Margin
An indicator of profitability that is determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage. In long-term reference, a measure of a company's net profit margin in the latest reported quarter divided by profit margin in the fiscal year previous. In short-term reference, a measure of a company's net profit margin in the latest reported quarter divided by profit margin in the quarter immediately preceding.
Profit Taking
Selling securities to take a profit. The process of converting paper profits into cash.
Profitability Index
Also known as the benefit/cost ratio of a capital-expenditure project, it is defined as the ratio of discounted after-tax cash inflows divided by discounted after-tax cash outflows. Projects for which this ratio exceeds one show a positive return and are deemed acceptable.
Pro Forma
When a new issue is being planned for distribution, the corporation issuing the security must tell the suppliers of the new capital how they intend on spending the money received from the sale of the securities. The corporation publishes a pro forma balance sheet that integrates the new pool of money into their current operation. This shows the shareholders how the corporation would have spent the money if they had it on the day the pro forma balance sheet was created.
Pro Forma Financial Statements
Projected financial statements that are based on forecasts of future operating conditions.
Program Trading
A sophisticated computerized trading strategy whereby a portfolio manager attempts to earn a profit from the price spreads between a portfolio of equities similar or identical to those underlying a designated stock index, e.g., the Standard & Poor's 500 Index, and the price at which futures contracts (or their options) on the index trade in financial futures markets.
Promissory Note
A written commitment to pay a stated obligation by a specified date. It represents formal evidence of a credit arrangement.
Proxy
Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders' meeting. Includes information on closely held shares. Shareholders can and often do give management their proxy, representing the right and responsibility to vote their shares as specified in the proxy statement.
Public Company
A company that issues stocks to be traded on the public market.
Public Offering
The sale of securities by an issuing corporation to the general investing public.
Purchase Fund
A fund set up by a company to retire, through purchases in the market, a specified amount of its outstanding preferred shares or debt. Purchases are made at or below a certain price.
Purchase Group Agreement
A contract between participating members of an investment banking syndicate. This contract is sometimes called a syndicate contract or agreement among underwriters. The agreement appoints the originating investment banker as syndicate manager and agent; appoints additional manager if needed; defines members' proportional liability and agrees to pay each member's share on settlement date; authorizes the manager to form and allocate units to a selling group and agrees to abide by the rules of the selling group agreement, and defines the life of the syndicate.
Push-out
During a stock split, a push-out occurs when new shares are forwarded directly to the registered holders of old share certificates, without the holders having to surrender these old shares. Both old and new shares have equal value.
Put
1. An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time.
2. The act of exercising a put option.
Pyramid
To increase holdings that an investor has by using the most buying power available in a margin account with paper and real profits.
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