Glossary

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Haircut
A securities industry term for the formulas used in the valuation of securities for the purpose of calculating a broker-dealer's net capital. The haircut varies according to the class of a security, its market risk and the time to maturity.

Half-Stock
Common or preferred stock with a $50.00 par value instead of the more conventional $100.00 par value.

Hammering the Market
The intense selling of stocks by those who think prices are inflated. Speculators who think the market is about to drop and therefore sell short are said to be hammering the market.

Handle
One full point move in the market

Hands-off Investor
An investor willing to take a passive role in the management of a corporation. An individual or corporation with a large stake in another company may decide to adopt a 'hands-off' policy if, and as long as, satisfied with the current performance of management.

Hands-on Investor
An investor who takes an active role in the management of the company whose stock he or she has bought.

Handy and Harman Silver Quotation
A dealer in precious metals with a very large requirement for silver. Their quotation is the average price for which they can purchase silver in order to meet their need for that day. Photographic film manufacturers are heavy users of silver as are silversmiths and jewelers.

Hang Seng Index
The major indicator of stock market performance in Hong Kong. This index comprises thirty-three companies, divided into four sub-indices: 4-financial; 6-utilities; 9-property and 14-commerce and industry. The index is computed on an arithmetic basis, weighted by market capitalization and strongly influenced by large capitalization stocks such as Hang Seng Bank, Hong Kong Bank, Hong Kong Land and Cheung Kong.

Harami
In candlestick terminology, a small real body contained within a relatively long real body.

Hard Currency
Currency that is sought after as a stable standard of exchange and security. The major hard currencies are the U.S. dollar, Deutschemark, Swiss franc and the Japanese yen.

Haurlan Index
This indicator is calculated daily from the plurality of NYSE advances over declines. There are three components of the Haurlan index: Short-term, Long-term and Intermediate-term.

Head and Shoulders
On a technical analyst's trading chart, a pattern that has three peaks resembling a head and two shoulders. The stock price moves up to its first peak (the left shoulder), drops back, then moves to a higher peak (the top of the head), drops again but recovers to another, lower peak (the right shoulder). A head and shoulders top typically forms after a substantial rise and indicates a market reversal. A head and shoulders bottom (an inverted head and shoulders) indicates a market advance. Technical analysts generally consider a head and shoulders formation to be a very bearish indication.

Heavy Market
Refers to a bond, stock or commodity market with falling prices due to a larger supply of offers to sell than bids to buy.

Hedge
To create a trade which lowers the risk of an outright directional move (i.e., to go long one security, short another security). An investment made in order to reduce the risk of adverse price movements in a security. The intention is to reduce the risk of a loss from a specified event; e.g., hedging a currency to protect against detrimental currency movements that would reduce the portfolio return. Thus, you can reduce the risk of loss by taking a position through options or futures opposite to the current position they hold in the market.

Hedge Clause
A disclaimer in security reports, market letters or other printed matter involving evaluating investments which is intended to absolve the writer from responsibility for the accuracy of information obtained from usually reliable sources. A hedge clause may mitigate liability but writers may still be charged with negligence in their use of information.

Hedge Fund
A private investment partnership for U.S. investors, or an off-shore investment company for non-U.S. or tax-exempt investors, in which the general partner has made substantial personal investment and whose offering memorandum allows for the fund to use leverage and derivatives, take both long and short positions and invest in many markets. Hedge funds can profit in any market environment, even one with sharply declining prices, because they can take advantage of many speculative strategies, including program trading, swaps, arbitrage and selling short. Not all strategies may be used, but all must be available for use. Hedge funds can have a significant effect on day-to-day trading developments because they move billions of dollars in and out of markets quickly.

Hedge Wrapper
An options strategy whereby the holder of a long position in an underlying security buys an out of the money put and sells and out of the money call.

Hedged Tender
Refers to selling short a portion of shares being tendered in order to protect against a price drop in the event all shares tendered are not accepted.

Hedger
A trader who enters the market with the intent to protect a position in the underlying. An investor who uses futures market to minimize the risk in his or her business. Hedgers may be manufacturers, portfolio managers, bankers, farmers, etc.

Hedging
A strategy designed to reduce investment risk using "call" options, "put" options, "short" selling, or futures contracts. A hedge can help lock in existing profits. Its purpose is to reduce the potential volatility of a portfolio, by reducing the risk of loss.

Helsinki Stock Exchange
The smallest of the Nordic exchanges

Hemline Theory
A theory that the direction in which hemlines on women's clothing move is an indicator of the general direction that stock prices will move. Despite the fact that this theory sometimes seems to be prophetic, it is not considered by serious market analysts as anything more than wishful thinking.

Herrick Payoff Index
This is a commodity trading tool, useful for the early spotting of changes in price trend direction. The Payoff Index is best used to distinguish trends that are destined to continue from those that will most likely be short-lived. The Payoff Index is a commodity trading tool that is useful in the early identification of changes in the direction of price trends. The Payoff Index frequently helps distinguish between a rally in a trend that is destined to continue and a significant trend change that will provide a worthwhile trading opportunity.

Heuristic Method
Problem solving approached by trying out several different methods and comparing which provides the best solution.

Heuristics (Computer Science)
Computational rules of thumb. Distinct from algorithms, which are programs guaranteed to generate the correct result under all circumstances, heuristics may only turn out to be correct a certain percentage of time.

Hidden Node
Elements that give a neural network the ability to learn nonlinear patterns. The hidden nodes mathematically transform inputs by passing weighted sums of those inputs through nonlinear functions.

Hidden Values
Refers to the value of assets owned by a company but not yet reflected in the stock price, such as real estate, trademarks, patents, or exclusive contracts. Value-oriented money managers look for stocks with hidden values on their balance sheet in hopes that those values will be realized some day through a higher stock price either because of actions by current management or because of a takeover.

Hierarchical Neural Network
In artificial intelligence, a neural network in which predictions derived from networks at one level of the hierarchy are incorporated as inputs at another level. This architecture lends itself to faster training, as each network focuses learning solely on its own output.

High (hi)
The highest price that was paid for a stock during a certain period. For example, the high for the day was $80, but the high for the year was $120.

High and Low
Refers to the high and low transactions prices that occur each trading day.

High Flyer
A highly speculative high-priced stock that moves up and down sharply over a short period of time. For instance, the stock of an unproven high-technology company may be a high flyer.

High-grade Bond
A bond that has been rated double-A or triple-A by Standard & Poor's, Dominion Bond Rating, or Moody's rating services.

High Pass Frequency Filter
A detrending filter that lets pass the high frequency noise and rejects low frequency trend. Implemented by first applying a low pass filter to the data, and then subtracting the filtered data from the original data.

High Price
The highest (intraday) price of a stock over the past 52 weeks, adjusted for any stock splits.

High-tech Stock
Refers to the stock of companies involved in high-technology industries, such as computers, biotechnology, robotics, electronics, and semiconductors. Successful high-tech stocks have above-average earnings grow and therefore typically volatile stock prices.

High-Ticking
To pay the offered price.

High-yield Bond
A bond with a rating of BB or lower that pays a higher yield to compensate for the greater investment risk it represents to investors.

Highly Confident Letter
A letter from an investment bank that is 'highly confident' of the ability to arrange financing for a securities deal. A highly confident letter may be used to finance a multibillion-dollar takeover or a leveraged buyout. Though the investment banker is 'highly confident' financing can be arranged, a highly confident letter is not an ironclad guarantee of financing.

Hijacking
A term used by the Japanese for takeover.

Hines Ratio
A modified put/call ratio that refines traditional option ratio analysis by including the open interest figures in the equation and can be defined as (Total put volume/Total put open interest) divided by (Total call volume/Total call open interest)

Historical Cost
Refers to an accounting principle requiring all financial statement items be based on the original acquisition cost. The dollar is assumed to be stable for the period involved.

Historical Data
A series of past daily, weekly or monthly market prices (open, high, low, close, volume, open interest).

Historical Volatility
Calculated by using the standard deviation of underlying asset price changes from close to close trading going back 21 to 23 days. A measurement of how much contract price has fluctuated over a period of time in the past; usually calculated by taking a standard deviation of price changes over a time period.

Holder
One who purchases an option.

Holding Company
A company that holds controlling interests through majority shareholdings in other companies. Often, the holding company itself does not carry on any active business. A corporation that owns enough voting stock in another firm can control management and operations by influencing or electing its board of directors.

Hook Day
A trading day in which the open is above/below the previous day's high/low and the close is below/above the previous day's close with narrow range.

Horizon Analysis
Refers to a method of measuring the discounted cash flow (time-adjusted return) from an investment using time periods or a series of horizons that differ from the investment's contractual maturity. The horizon date may be a date determined by the perspective of the investor's overall portfolio or it may be the end of a business cycle. Horizon analysis takes into account reinvestment assumptions that allow comparisons with alternative investments. This may be more realistic in terms of individual portfolio requirements than traditional yield-to-maturity calculations.

Horizontal Merger
A term used to describe the combining of two or more companies who are direct competitors in the same product lines and markets.

Horizontal Spread
Purchasing either a call or put options and simultaneously selling the same type of option with the same strike price but a different expiration month.

Hostile Takeover
Refers to the takeover of a company by an acquiring company or raider against the wishes of the target company's current management and board of directors. If the offer price is high enough, shareholders may vote in favor of the takeover even if management resists. A hostile takeover can be converted to a friendly takeover if the offer price is increased sufficiently to change the target company's management attitudes. (See Shark Repellent; Poison Pill)

Hot Issue
Refers to a newly issued stock that is in great public demand. Since there is public demand for hot issue stocks, they usually rise rapidly in price at their initial offering.

Hurdle Rate
The minimum acceptable rate of return on an investment (also called cut-off rate). Typically equals the cost of capital incurred in financing the project.

Hyperinflation
A term used to describe a rise in the price of goods and/or services of 100% or more in one year.

Hypothecate
To pledge securities as collateral for a loan.

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