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Optionetics Trading Education Center
Macaroni Defense
A defensive tactic used by a company trying to defeat
a takeover attempt by a raider or unfriendly bidder. The target
company issues a massive amount of bonds that must be redeemed
at a mandatory higher redemption value if the company is taken
over. The redemption value of these bonds expands when the
company is threatened, much like macaroni expands when it
is cooked, making the takeover prohibitively expensive to
complete.
Macroeconomics
An analysis of a country's economy as a whole using
aggregate data such as unemployment, inflations, price levels
and industrial production.
Madrid Stock Exchange
The largest most international of Spain's four stock
exchanges. Trading on the continuous market owned by the four
exchanges is from 10 A.M. to 5 P.M. with pre-opening trading
from 10 A.M. to 11 A.M. Trading on the exchanges is from 10
A.M. to 12:15 P.M. Monday through Friday and is handled through
an electronic trading system based on the CATS system developed
by the Toronto Stock Exchange. Settlement is five business
days after the trade date.
Maintenance Call
A call for additional money or securities when a brokerage
customer's margin account equity falls below requirements.
Maintenance Fee
An annual charge to maintain some types of brokerage
accounts.
Maintenance Performance Bond
A sum, usually smaller than-but part of-the initial
performance bond, which must be maintained on deposit in the
customer's account at all times. If a customer's equity in
any futures position drops to, or under, the maintenance performance
bond level, a "performance bond call" is issued
for the amount of money required to restore the customer's
equity in the account to the initial margin level.
Major Auction
The overall trend of the market such as might be observed
on a bar chart.
Major Trend
Underlying price trend prevailing in a market despite
temporary declines or rallies.
Majority Shareholder
A shareholder who controls more than half of the outstanding
shares of a corporation. If ownership of the company is widespread
and there is no majority shareholder, effective control can
be gained by owning far less than 51% of the outstanding shares.
Make a Market
To stand ready to buy or sell a particular security
as a dealer for its own account. A market maker accepts the
risk of holding the position in the security. (See also: Market
Maker)
Make a Price
Refers to the practice of maintaining firm bid and
offer prices in a specific security by standing ready to buy
or sell round lots at publicly quoted prices. The dealer is
called a market maker in the over the counter market and a
specialist on the stock exchanges. A dealer who makes a market
long-term is said to maintain a market.
Managed Account
This is similar to a discretionary account where a
client has given specific written authorization to a partner,
director or qualified portfolio manager of an investment dealer
to select securities and execute trades, but on a continuing
basis and for a fee. Managed accounts can be solicited whereas
discretionary accounts are opened as a matter of convenience
to clients who are ill or out of the country.
Management Buy-in
Refers to the purchase of a large and often controlling
interest in a company by an outside investor group that chooses
to retain existing management. The outside investors may be
venture capitalists that believe in the future of the company's
products, services and management. Usually the investor group
places its representatives on the board of directors to monitor
the progress of the company.
Management Buyout
The purchase of all of a corporation's publicly held
shares by the existing management that takes the company private.
If management has to borrow heavily to finance the buyout
it is called a leveraged buyout (LBO). Management may want
to buy their company because they want to avoid a hostile
takeover which would result in their replacement; to avoid
the scrutiny that goes along with running a public company;
or because they think they can make more money buy owning
a larger share of the company and then taking the company
public at a later date with a reverse leveraged buyout.
Management/ Closely Held Shares
Percentage of shares held by persons closely related
to a company, as defined by the Securities and Exchange Commission.
Part of these percentages often is included in Institutional
Holdings-making the combined total of these percentages more
than 100. There is overlap as institutions sometimes acquire
enough stock to be considered by the SEC to be closely allied
to the company.
Management Expense Ratio (MER)
This figure comprises the management fee plus all
other expenses (excluding government taxes) that are charged
directly to the mutual fund (as set out in each fund's prospectus),
stated as a percentage of the Net Asset Value of the Fund.
Managing Underwriter
Refers to an investment-banking firm of an underwriting
group that is leading and originating the purchase and distribution
of a new issue of securities. The agreement among underwriters
authorizes the managing underwriter, or syndicate manager,
to act as agent for the group in purchasing, carrying and
distributing the issue as well as complying with all federal
and state legal requirements. The agreement also authorizes
the managing underwriter to form the selling group, determine
the allocation of securities to each member, make sales to
the selling group at a specified discount (concession) from
the public offering price, engage in open market transactions
during the underwriting period to stabilize the market price
of the security, and borrow for the syndicate account to cover
costs.
Mandelbrot Set
Complex but structured pattern produced by an equation
in which the result is fed back into the equation repeatedly;
self-similarity.
Manipulation
The illegal practice of buying or selling a security
for the purpose of creating a false or misleading appearance
of active trading, or for the purpose of raising or depressing
the price to induce purchases or sales by others.
Mapping
A function, or relation between values.
Margin
A deposit made by a trader with a clearinghouse to
ensure that he/she will fulfill any financial obligations
resulting from his or her trades. Margin is the amount of
money a company will lend you against the security of the
investment you buy. The equity contributed by a customer as
a percentage of the current market value of the securities
held in a margin account is thus the margin amount. The same
attributes apply to leverage. This amount will change as the
price of the investment changes.
Margin Account
A customer account in which a brokerage firm lends
the customer part of the purchase price of securities.
Margin Account (Stocks)
A leverageable account in which stocks can be purchased
for a combination of cash and a loan. The loan in the margin
account is collateralized by the stock and, if the value of
the stock drops sufficiently, the owner will be asked to either
put in more cash, or sell a portion of the stock. Margin rules
are federally regulated, but margin requirements and interest
may vary among broker/dealers.
Marginal Significance Level of Test-Statistics
The probability distribution used to test the hypothesis
that the beta coefficient does not equal zero. A T-statistic
of approximately 1.65 reflects a 0.90 or 90% confidence and
the marginal significance is 1-0.90 = 0.1 or 10%.
Margin Call
The Federal Reserve Board's demand that a customer
deposit a specified amount of money or securities when a purchase
is made in a margin account; the amount is expressed as a
percentage of the market value of the securities at the time
of purchase. The deposit must be made within one payment period.
Margin Ratio
A measure of a corporation's relative profitability.
It is calculated by dividing the operating profit by the net
sales.
Margin Requirements
When purchasing securities one may borrow (usually
from a broker) to finance part of the purchase. The down payment
required, or the proportion of funds the investor has to put
up, is called the margin requirement. It is normally expressed
as a percentage.
Margin Requirements (Options)
The amount of cash an uncovered (naked) option writer
is required to deposit and maintain to cover his daily position
valuation and reasonably foreseeable intra-day price changes.
Marginal Cost of Capital
Refers to the weighted cost of the additional capital
raised in a given period. Weighted cost of capital, also known
as composite cost of capital, is the weighted average of costs
applicable to the issues of debt and classes of equity that
compose the corporation's capital structure.
Mark-to-Market
The daily adjustment of margin accounts to reflect
profits and losses.
Markdown
The difference between the highest current bid price
among dealers and the lower price that a dealer pays to a
customer.
Marked to Market
At the end of each business day the open positions
carried in an account held at a brokerage firm are credited
or debited funds based on the settlement price of the open
positions that day.
Market
1. The place where buyers and sellers meet to exchange
goods and services.
2. The demand, actual or potential, for a product or service.
Market Arbitrage
The simultaneous purchase and sale of the same security
in different markets to take advantage of a price disparity
between the two markets.
Market Capitalization
The total dollar value of all outstanding shares.
Computed as shares multiplied by the current market price.
It is a measure of corporate size.
Market Capitalization Rate
The rate of discount that investors apply to future
cash flows when establishing the current market price for
a security. It also represents the effective yield provided
by the security, or the discounted rate that, if applied to
anticipated cash flows, equates the present value of such
cash flows with the current market price of the security.
Market Cycle
The period between the two latest highs or lows of
the S&P 500, showing net performance of a fund through
both an up and a down market. A market cycle is complete when
the S&P is 15 % below the highest point or 15 % above
the lowest point (ending a down market). The dates of the
last market cycle are: 12/04/87 to 10/11/90 (low to low).
Market-If-Touched (M.I.T. )
A price order that automatically becomes a market
order if the price is reached. .
Market Maker
A dealer willing to accept the risk of holding a particular
security in its own account to facilitate trading in that
security. On the Over-The-Counter markets, there are individuals
and companies that maintain bid and offerings for stocks.
They must be prepared to buy or sell stocks from investors
at any time.
Market on Close
An order specification that requires the broker to
get the best price available on the close of trading, usually
during the last five minutes of trading.
Market Order
Buying or selling securities at the price given at
the time the order reached the market. This can be different
than the price on the broker's screen depending on how fast
the market is moving. A market order is to be executed immediately
at the best available price, and is the only order that guarantees
execution.
Market Out Clause
A clause in an underwriting agreement allowing the
underwriter to cancel the agreement without penalty for certain
specified reasons, such as the issue becoming unsellable due
to an unexpected change in securities markets, or in the affairs
of the company whose securities are being underwritten.
Market Portfolio
Investment portfolio encompassing all securities traded
in financial markets in appropriate proportions. This is the
most diversified portfolio available to investors, and has
a beta coefficient of 1.
Market Price
The most recent price at which a security transaction
took place.
Market Risk
The potential for an investor to experience losses
owing to day-to-day fluctuations in the prices at which securities
can be bought or sold.
Market Sentiment
Crowd psychology, typically a measurement of bullish
or bearish attitudes among investors and traders.
Market Timing
Using analytical tools to devise entry and exit methods.
Market Value
The price at which investors buy or sell a share of
common stock or a bond at a given time. Market value is determined
by the interaction between buyers and sellers.
Market Weighted
When a portfolio sector or stock-weighting matches
the weighting held by a market index, we say that the Fund
is "market weighted" in that sector or stock.
Markov Chain
A set of processes where the probabilities for the
next state are dependent on the present state.
Martingale
From roulette; a tactical system that requires doubling
your bet after each loss, so that winning once you recoup
the amount originally bet.
Matching Orders
Simultaneously entering identical (or nearly identical)
buy and sell orders for a security to create the appearance
of active trading in that security. This violates the anti-fraud
provisions of the Securities Exchange Act of 1934.
Material Change
Any change in business operations or capital of the
issuer that would be expected to have a significant effect
on the market price or value of the securities.
Materiality
Information or an event that is significant enough
to have a large impact on a corporation's stock prices is
said to have materiality, or be material. Material information
is information a reasonable investor needs to make an informed
decision about the investment, such as an earnings report
not yet released, plans to takeover another company, or that
the company has itself become a target company.
Maturity Date
The date on which a bond's principal is repaid to
the investor and interest payments cease. Maturity is the
number of years until the principal amount of a bond is due
and payable by the issuer to its bondholders. Bonds are issued
with a variety of short- (a few days to one year), intermediate-
(two to ten year), and long-term (ten to forty year) maturities.
At the end of the term, the debt (bond) is expected to be
repaid in full.
Maturity Factoring
An arrangement whereby the factor performs the entire
credit and collection function and remits to the seller for
the receivables sold each month on the average due date of
the factored receivables. The factor's commission ranges from
0.75% to 2%, depending upon the bad debt risk and handling
costs.
Maxima
The highest or maximum value.
Maximax
Optimistic decision-making that identifies the decision
alternative with the best possible outcomes.
Maximin
Pessimistic decision-making that identifies the decision
alternative with the worst possible outcomes.
Maximum Adverse Excursion
A historical measurement of the closed losing trades
versus the closed profitable trades of a trading system. Used
to determine the stop-loss level that can be used that will
allow winning trades to remain; the extreme unfavorable price
level reached for both profitable and unprofitable trades.
Maximum Entropy Method (MEM)
More flexible than Fourier analysis, the maximum entropy
method is both a tool for spectrum analysis and a method of
adaptive filtering and trend forecasting. As a tool for spectrum
analysis, the MEM system can provide high resolution spectra
for identifying the dominant data cycles within relatively
short time series, such as open, high, low, close, volume
and open interest, or study results, such as RSI, TRIX, and
so on. (Fourier analysis, in contrast, gives best results
when applied to time series of 6 months or longer.) As a forecasting
tool, MEM is used in conjunction with moving averages to forecast
lower and upper trend channels in the data.
Maximum Price Fluctuation
The maximum amount the contract price can change,
up or down, during one trading session, as stipulated by Exchange
rules.
McClellan Oscillator
This index is based on New York Stock Exchange net
advances over declines. It provides a measure of such conditions
as overbought/oversold and market direction on a short- to
intermediate-term basis. The McClellan Oscillator measures
a bear market selling climax when it registers a very negative
reading in the vicinity of -150. A sharp buying pulse in the
market would be indicated by a very positive reading, well
above 100.
Mean
When the sum of the values is divided by the number
of observations.
Mean Deviation
The average absolute value of the difference between
the population of numbers and the mean.
Mean Return
The average monthly total return of a stock. The total
return is price change added to dividends and indicates the
probability distribution of possible returns. Also known as
the Expected Return.
Mean Return (Securities)
A term used in security analysis to indicate the expected
value (or statistical mean) of all the likely returns of investments
comprising an investment portfolio. Also known as the Expected
Return. The purpose of the analysis of investment portfolios
is to quantify the relationship between risk and return. The
underlying assumption is that investors have different risk-value
preferences and that rational investors will always seek the
maximum return rate for every level of acceptable risk.
Mean Reverting
The term adopted in academic literature for one possible
state of a price series: that state when price is oscillating
randomly about some (unknown) mean value-that is, it is not
trending.
Median Line
The line that is drawn from an extreme that bisects
a line drawn through the next corrective phase after the pivot
point.
Medium-term Bond
A bond or debenture that matures in more than three
years, but less than 10.
Member
1. At the New York Stock Exchange: one of the 1,366
individuals owning a seat on the Exchange.
2. Of the National Association of Securities Dealers: any
broker or dealer admitted to membership in the Association.
Member Firm
A broker-dealer or stock brokerage company in which
at least one of the principal officers is a member of a recognized
stock exchange, a recognized self-governing body (i.e., the
IDA), or a clearing corporation.
Mercantile Agencies
Organizations that supply businesses with credit ratings
and reports on other firms that are or might become customers.
Mercantile agencies tend to specialize in an industry and
geological location and may also collect past due accounts
or trade collection statistics. Dun & Bradstreet is the
largest of these agencies.
Merger
Combining two or more companies by offering the stockholders
of one company securities in another company in exchange for
the surrender of their stock.
Minima
The lowest or minimum value.
Minimum Price Fluctuation
Smallest increment of price movement possible in trading
a given contract, often referred to as a "tick."
Minimum Purchases
For mutual funds, the amount required to open a new
account (Minimum Initial Purchase) or to deposit into an existing
account (Minimum Additional Purchase). These minimums may
be lowered for buyers participating in an automatic purchase
plan
Minor Auction
The latest trend of the market (i.e., what it is doing
now).
Minority Interest
This appears on consolidated financial statements
where the parent company's figures are combined with those
of its subsidiaries. Even if the parent company owns less
than 100% of a subsidiary's stock, all of the subsidiary's
assets and liabilities are combined in the consolidated financial
statements. To compensate, the part not owned by the parent
company is minority interest and is shown as a liability on
the balance sheet and deducted in the earnings statement.
Mode
The most frequently occurring value. Model equation.
Momentum
A time series representing change of today's price
from some fixed number of days back in history.
Momentum Filter
A measure of change, derivative or slope of the underlying
trend in a time series. Implemented by first applying a low
pass filter to the data and then applying a differencing operation
to the results.
Momentum Indicator
A market indicator utilizing price and volume statistics
for predicting the strength or weakness of a current market
and any overbought or oversold conditions, and to note turning
points within the market.
Momentum Trading
Investing with (or against) the momentum of the market
in hopes of profiting from it.
Money Laundering
Popular term used to describe the process whereby
criminals conceal illicitly acquired funds by converting them
into seemingly legitimate income. While the term refers to
the proceeds of organized crime generally, it is now most
often associated with financial activities of drug dealers
who seek to launder the large amounts of cash generated from
the sale of narcotics.
Money Market
The securities market that deals in short-term debt.
Money-market instruments are forms of debt that mature in
less than one year and are very liquid. Treasury bills make
up the bulk of the money-market instruments.
Money Market Fund
A mutual fund that invests only in short-term securities,
such as bankers' acceptances, commercial paper, repurchase
agreements and government bills. The net asset value per share
is maintained at $1. Such funds are not federally insured,
although the portfolio may consist of guaranteed securities
and/or the fund may have private insurance protection. The
fund's objective is to earn interest while maintaining a stable
net asset value of $1 per share. Generally sold with no load,
the fund may also offer draft-writing privileges and low opening
investments.
Money Market Instruments
Debt instruments such as Treasury bills or corporate
paper with a maturity of less than one year that are easily
converted to cash.
Money Market Securities
Short-term securities that pay some income and focus
on price stability. Considered very conservative investments
because they offer little potential for growth.
Money Supply
The total stock of bills, coins, loans, credit and
other liquid instruments in the economy. It is divided into
three categories: M1, M2 and M3, according to the type of
account in which the instrument is kept.
Monowave
In Elliott Wave Theory, a single wave within a range
of waves.
Moody's Investors Service
A subsidiary of Dun & Bradstreet, Moody's is one
of the two best known bond rating agencies in the U.S. Moody's
rates bonds, commercial paper, common and preferred stocks,
and municipal short-term issues. Moody's rates most publicly
held corporate and municipal bonds and many Treasury and government
issues but does not usually rate privately placed bonds.
Morgan Stanley Capital International
Index (MSCI)
Provides a list of indices measuring international
performance (such as the World Index, Far East) and national
performance (including Australia, Canada and US) based on
the share prices of more than 1,600 companies. It also provides
performance measurement for emerging markets and international
industry groups.
Moving Averages
The moving average is probably the best-known, and
most versatile, indicator in the analyst's tool chest. It
can be used with the price of your choice (highs, closes or
whatever) and can also be applied to other indicators, helping
to smooth out volatility. A mathematical procedure to smooth
or eliminate the fluctuations in data and to assist in determining
when to buy and sell. Moving averages emphasize the direction
of a trend, confirm trend reversals and smooth out price and
volume fluctuations or "noise" that can confuse
interpretation of the market; the sum of a value plus a selected
number of previous values divided by the total number of values.
As the name implies, the Moving Average is the average of
a given amount of data. For example, a 14-day average of closing
prices is calculated by adding the last 14 closes and dividing
that number by 14. The result is noted on a chart. The next
day the same calculations are performed with the new result
being connected (using a solid or dotted line) to yesterdays,
and so forth.
Moving Average Chart
A tool used by technical analysts to track the price
movements of a commodity. It plots average daily settlement
prices over a defined period of time (for example, over three
days for a three-day moving average).
Moving Average Convergence/Divergence
(MACD)
The MACD is used to determine overbought or oversold
conditions in the market. The crossing of two exponentially
smoothed moving averages that are plotted above and below
a zero line. The crossover, movement through the zero line,
and divergences generate buy and sell signals. Written for
stocks and stock indices, MACD can be used for commodities
as well. The MACD line is the difference between the long
and short exponential moving averages of the chosen item.
The signal line is an exponential moving average of the MACD
line. Signals are generated by the relationship of the two
lines.
Moving Average Crossovers
The point where the various moving average lines intersect
each other or the price line on a moving average price bar
chart. Technicians use crossovers to signal price-based buy
and sell opportunities.
Moving Average Model
A time series equation representing a linear combination
of present and past random shocks (forecast errors). A moving-average
process of order Q, MA(q), may be written.
Moving Window
Snapshot of a portion of a time series at an instant
in time. The window is moved along the time series at a constant
rate.
Multicolinearity
Two variables that have a correlation of greater than
0.70 or less than -0.70 in a regression model. The final result
is the two variables explaining the same portion of variation
where either variable would be sufficient.
Multiple Linear Regression
More than one independent variable is used to account
for the variability in one dependent variable.
Municipal Bond
A debt security issued by a state, a municipality
or other subdivision (such as a school, park, sanitary or
other local taxing district) to finance its capital expenditures.
Such expenditures might include the construction of highways,
public works or school buildings.
Municipal Bond Fund
A mutual fund that invests in municipal bonds and
operates either as a unit investment trust or as an open-end
fund. The fund's objective is to maximize federally tax-exempt
income. See also: mutual fund.
Mutual Fund
An open-end investment company that pools investors'
money to invest in a variety of stocks, bonds, or other securities.
A mutual fund issues and redeems shares to meet demand, and
the redemption value per share is the net asset value per
share, less in some cases a redemption fee which represents
a rear-end load. The shares are redeemable on any business
day at the net asset value. Each mutual fund's portfolio is
invested to match the objective stated in the prospectus,
which guides the fund's professional manager in picking securities
for the fund to buy. A closed end fund, often incorrectly
called a mutual fund, is instead an investment trust. Both
are investment companies regulated by the Investment Company
Act of 1940.
Mutual Fund Prospectus
A legal document which describes the investment objective
of the fund, the manner in which the fund is administered
and operated, the fees and other pertinent information. The
prospectus should be read thoroughly before making an investment
decision.
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