Glossary of Investing & Trading Terms

This section is continually expanding as new definitions and terms are added. Look here for popular technical and fundamental terms and various indicator definitions and equations. 

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After-Tax ROE

The average after-tax return on equity of the portfolio's holdings.

Annualized Average Return

The fund's average performance, including reinvestment of dividends and capital gains, for the period stated. A 5-Year AA return would show a fund's average return for each of the 5 years. It is not a guaranteed return, however, and there may be years within that period when the fund showed a loss.

Arbitrage

The simultaneous purchase and sale of identical or equivalent financial instruments or commodity futures in order to benefit from a discrepancy in their price relationship.

Ask

Also called "offer". Indicates a willingness to sell a futures contract at a given price. (See bid.)

Asset Allocation 

The percentage of the fund's investment portfolio invested in each major asset class: common stocks, convertibles, cash & equivalent, bonds, other.

Attractor (aka sjh_Attractor)

According to me (Sunny Harris) and attractor is a magnetic force that pushes and pulls the market prices toward it.  There are always attractors at other levels pulling in the opposite direction, so that accounts for the pushing away from  part of the definition.  In my way of looking at the market, support and resistance lines drawn from previous price points can be attractors.  Top, bottom and midline Bollinger Bands can be attractors. The 200-day and 50-day moving averages are attractors.  Attractors are places where buys or sellers have lived before and will jump into action when price gets to that level.

The Average True Range ("ATR") is a measure of volatility. It was introduced by Welles Wilder in his book, New Concepts in Technical Trading Systems, and has since been used as a component of many indicators and trading systems.

True Range is the greatest of the following differences:

1.  Today's high to today's low

2. Today's high to yesterday's close

3. Today's low to yesterday's close.

The range is normally the "high-low".  However, any time the value of yesterday's close is not within the range of today's bar, rule 2 or 3 applies.  As with most other indicators, the periodic value is summed and smoothed to create the final indicator.

Back Months

The futures or options on futures months being traded that are furthest from expiration.

Bear

One who believes prices will move lower.

Bear Market

A market in which prices are declining.

Beta

Indicates the return volatility of the fund's holdings relative to the general stock market over the past 5 years. A beta of greater than 1 indicates higher return volatility than the market, while a beta of less than 1 indicates lower return volatility than the market.

Bid

The price that the market participants are willing to pay. See offer.

Bull

One who expects prices to rise.

Bull Market

A market in which prices are rising.

Buy On Close

To buy at the end of a trading session at a price within the closing range.

Buy On Opening

To buy at the beginning of a trading session at a price within the opening range.

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.

Call

An option to buy a commodity, security or futures contract at a specified price anytime between now and the expiration date of the option contract.

Capital Gains

Distributions to mutual fund shareholders of net profits on the sale of securities held in the fund's portfolio.

Cash Commodity

The actual physical commodity as distinguished from a futures commodity.

Close, The  

The period at the end of the trading session. Sometimes used to refer to the closing range.

Closing Range (or Range)

The high and low prices, or bids and offers, recorded during the period designated as the official close. 

Commission (or Round Turn)

The one-time fee charged by a broker to a customer when a futures or options on futures position is liquidated either by offset or delivery.

CFTC 

The Commodity Futures Trading Commission as created by the Commodity Futures Trading Commission Act of 1974. This government agency currently regulates the nation's commodity futures industry.

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. (See delivery month.)

Proprietary Indicator of Sunny Harris, stands for Cardinal Profitability Constructs.  A single index which measures the likelihood of failure of a systematic trading system. Click above to see the equations for calculating it and view a slide show from one of Sunny's presentations.

CPI

Consumer Price Index, an inflation benchmark.

Day Order

An order that is placed for execution during only one trading session. If the order cannot be executed that day, it is automatically cancelled.

Day Trading

Refers to establishing and liquidating the same position or positions within one day's trading, thus ending the day with no established position in the market.

Deferred

Another term for "back months."

Delivery

The tender and receipt of an actual commodity or financial instrument, or cash in settlement of a futures contract.

Divergence

A chart pattern that is shown by prices creating higher highs and indicator making lower highs, usually suggesting a turn down in the near future; or, vice versa, prices making lower lows with indicators making higher lows, suggesting a turn to the upside in the near future.

Dividends

Distributions to mutual fund shareholders of interest and dividend income received on the securities held in the fund's portfolio.

EPS Growth Rate

The average growth in earnings per share of the portfolio's holdings, based on percentage change over the prior year.

Exercise Or Strike Price

The price at which the holder (buyer) may purchase or sell the underlying futures contract upon the exercise of an option.

Expense Ratio

The fund's annual operating expenses expressed as a percentage of the average daily NAV.

Expiration Date

The last day that an option may be exercised into the underlying futures contract. Also, the last day of trading for a futures contract.

Floor Broker

An exchange member who is paid a fee for executing orders for Clearing Members or their customers. A Floor Broker executing orders must be licensed by the CFTC.

Floor Trader

An exchange member who generally trades only for his/her own account or for an account controlled by him/her. Also referred to as a "local."

Futures  

A term used to designate all contracts covering the purchase and sale of financial instruments or physical commodities for future delivery on a commodity futures exchange.

Futures Commission Merchant  

A firm or person engaged in soliciting or accepting and handling orders for the purchase or sale of futures contracts, subject to the rules of a futures exchange and, who, in connection with solicitation or acceptance of orders, accepts any money or securities to margin any resulting trades or contracts. The FCM must be licensed by the CFTC.

Handle

In the S&P 500 a handle is one dollar unit or 100 points.  For example, if the markets is trading at 988.00 (or "8 even") if the market moves up to the next handle the S&P's would be trading at 989.00 (or "89 even").  With the markets moving so quickly it is important to listen for the "handle" if not in front of a quote screen.

Head & Shoulders

A chart formation in which a price exhibits three successive rallies, the second one being the highest.  This pattern is viewed as a reversal pattern.

Hedge  

The purchase or sale of a futures contract as a temporary substitute for a cash market transaction to be made at a later date. Usually it involves opposite positions in the cash market and futures market at the same time. 

Holder

One who purchases an option.

Initial Performance Bond

The funds required when a futures position (or a short options on futures position) is opened. (Previously referred to as Initial Margin)

Investment Objective

Each fund is assigned to an investment objective group by Lipper Analytical analysts on the basis of the investment policy statement from the fund's prospectus, and a review of the funds investments. Fund rankings are within this 'peer group'.

Investment Minimums

The minimum dollar amount needed to buy this fund's shares for the first time or for subsequent investments in the fund.

Limit Order

An order given to a broker by a customer that specifies a price; the order can be executed only if the market reaches or betters that price.

Limit Price

(See maximum price fluctuation.)

Lipper Market Phase Rankings Quintiles

An evaluation of the fund's performance relative to its peer group during the current phase of the market cycle as well as the prior up and down phases. An 'A' means a fund is in the top 20% of all funds in its investment objective (highest total return), while an 'E' means a fund is in the bottom 20% (lowest total return).

Liquidation

Any transaction that offsets or closes out a long or short futures position.

Load

Also known as sales charge. The maximum amount charged on the initial purchase of a fund that carries a load, expressed as a percentage of the offer price. The percentage may decrease for large purchases of the fund.

Long

One who has bought a futures or options on futures contract to establish a market position through an offsetting sale; the opposite of short.

Long Hedge

The purchase of a futures contract in anticipation of an actual purchase in the cash market. Used by processors or exporters as protection against and advance in the cash price. (See hedge, short hedge.)

Maintenance Performance Bond (Previously referred to a Maintenance Margin)

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.

Management Fee

Amount paid to the fund's investment advisor expressed as a percentage of the average daily NAV.

Margin   (See Performancy Bond)
Mark-To-Market

The daily adjustment of margin accounts to reflect profits and losses.

Market Order

An order for immediate execution given to a broker to buy or sell at the best obtainable price.

Maximum Price Fluctuation

The maximum amount the contract price can change, up or down, during one trading session, as stipulated by Exchange rules.

Minimum Price Fluctuation

Smallest increment of price movement possible in trading a given contract, often referred to as a "tick."

M.I.T.

Market-If-Touched. A price order that automatically becomes a market order if the price is reached.

Net Asset Value (NAV)

The total market value of all assets of the fund, less all liabilities, divided by the number of shares outstanding. It is also the price you pay per share for fund shares which have no front-end sales charge.

Offer

Also called "ask". Indicates a willingness to sell a futures contract at a given price. (See bid.)

Offer Price

The price at which mutual fund shares that carry a front-end load (or sales charge) can be purchased.

Offset

Selling if one has bought, or buying if one has sold, a futures or options on futures contract.

Open Interest

Total number of futures or options on futures contracts that have not yet been offset or fulfilled by delivery. An indicator of the depth or liquidity of a market (the ability to buy or sell at or near a given price) and of the use of a market for risk- and/or asset-management.

Open Order

An order to a broker that is good until it is canceled or executed.

Opening, The

The period at the beginning of the trading session during which all transactions are considered made or first transactions were completed.

Opening Price (Or Range)

The range of prices at which the first bids and offers were made or first transactions were completed.

Option

A contract giving the holder the right, but not the obligation, hence, "option," to buy (call option) or sell (put option) a futures contract in a given commodity at a specified price at any time between now and the expiration of the option contract.

Out-Trades

A situation that results when there is some confusion or error on a trade. A difference in pricing, with both traders thinking they were buying, for example, is a reason why an out-trade may occur.

Peer Group Return

Average of the total return for all funds in this investment objective.

Performance Bond (Previously referred to as Margin)

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 (previously referred to as Margin Call)

A demand for additional funds because of adverse price movement.

Performance Quintile

This fund's cumulative return compared to all other funds in its investment objective (peer group) and ranked by the fund's performance: An 'A' means a fund is in the top 20% of all funds in its investment objective, while an 'E' means a fund is in the bottom 20%.

Premium

1.) The excess of one futures contract price over that of another, or over the cash market price. 2.) The amount agreed upon between the purchaser and seller for the purchase or sale of a futures option -- purchasers pay the premium and sellers (writers) receive the premium.

Price/Earnings Ratio

The average price-to-earnings per share ratio of the portfolio's holdings, based on latest twelve months earnings.

Position

An interest in the market, either long or short, in the form of open contracts. (See open interest.)

Put

An option to sell a commodity, security, or futures contract at a specified price at any time between now and the expiration of the option contract.

Rally

An upward movement of prices following a decline; the opposite of a reaction.

Range

The high and low prices or high and low bids and offers, recorded during a specified time.

Ranking

Fund's performance rank within the total number of funds in that investment objective.

Reaction

A decline in prices following an advance. The opposite of rally.

Registered Representative

A person employed by, and soliciting business for, a commission house or Futures Commission Merchant.

Round-Turn

Procedure by which a long or short position is offset by an opposite transaction or by accepting or making delivery of the actual financial instrument or physical commodity.

Scalp

To trade for small gains. Scalping normally involves establishing and liquidating a position quickly, usually within the same day, hour or even just a few minutes.

Sectors

Shows the breakdown of the portfolio's investments into industry groups.

Settlement Price

A figure determined by the closing range that is used to calculate gains and losses in futures market accounts. Settlement prices are used to determine gains, losses, margin calls, and invoice prices for deliveries. (See closing range.)

Short

One who has sold a futures contract to establish a market position and who has not yet closed out this position through an offsetting purchase; the opposite of long.

Short Hedge

The sale of a futures contract in anticipation of a later cash market sale. Used to eliminate or lessen the possible decline in value of ownership of an approximately equal amount of the cash financial instrument or physical commodity. (See hedge, long hedge.)

Speculator

One who attempts to anticipate price changes and, through buying and selling futures contracts, aims to make profits; does not use the futures market in connection with the production, processing, marketing or handling of a product. The speculator has no interest in making or taking delivery.

Spread

The simultaneous purchase and sale of futures contracts for the same commodity or instrument for delivery in different months, or in different but related markets. A spreader is not concerned with the direction in which the market moves, but only with the difference between the prices of each contract.

Standard Deviation

A measure of the volatility of a fund's total returns. This measures the fluctuation of the fund's monthly return, above and below the mean, usually over a 5-year period. The higher the standard deviation number, the more a fund's returns vary from month to month.

Stop Order (Or Stop)

An order to buy or sell at the market when and if a specified price is reached.

Symbol

A five-letter code assigned by NASDAQ to identify the fund.

Ten Largest Holdings

The portfolio's ten largest investments, expressed as a percentage of the fund's net assets.

Tick

Refers to a change in price, either up or down. (See minimum price fluctuation.)

Total Net Assets

Total market value of the securities, cash and other assets of the fund, less all liabilities.

Total Return

Change in the value of the investment during the time period shown, assuming reinvestment of dividend and capital gains distributions.

Trend

The general direction of the market. Turnover
The percent of the securities portfolio that has been sold or replaced by the fund over the course of a year, expressed as a percentage of average daily NAV.

Volatility (Fund/Objective Average)

The first letter shows the degree to which this fund's monthly returns have fluctuated, above and below the mean, over the past five years. The second letter is the average 5-year volatility of the funds in this investment objective compared to the average volatility of each other equity objective. An 'A/A' means a fund is in the top 20% (lowest volatility), of all funds in its investment objective, and its investment objective average is in the top 20% (least volatile), of all equity (or fixed income), investment objectives. An 'E/E' means a fund is in the bottom 20% (most volatile), and its investment objective average is also in the most volatile quintile.

Volume

The number of transactions in a futures or options on futures contract made during a specified period of time.

Yield (12 month)

Dividends and interest income received from the fund's investments, less operating expenses, distributed during the past twelve months, expressed as a percentage of the NAV. There are different formulas for calculation of yield, some of which differ from the formula for SEC standardized yield.

Writer

An individual who sells an option.