Subject: Trading - Jargon and Terminology
Last-Revised: 23 Feb 2000
Contributed-By: Ed Krol (e-krol at uiuc.edu), Brook F. Duerr, Art Kamlet (artkamlet at aol.com), Bob Grumbine (rgrumbin at nyx.net), Chris Lott (contact me), Arthur Gibbs, Jason Hsu
Some common jargon that you should understand about trading equities is explained here briefly. See other articles in the FAQ for more detailed explanations on most of these terms.
- AON, "all or none"
- A buy or sell order with this designation loses normal order priority if the amount of shares available doesn't match or exceed the order size. There may be some specialized circumstances where it could be useful, such as late in the day on a GTC entry (to avoid a fractional fill such as 100 shares of a 1000 share order, with resulting doubling of total commissions when the rest of the order fills the following morning).
- blue-chip stock
- A valuable stock that has proven itself; i.e., has been around for
- bottom fishing
- Purchasing of stock declining in value, or of stocks that have suffered drastic declines in their prices.
- Mutual fund companies give volume-based percentage discounts in the load fee charged to purchase shares. A breakpoint is the level of investment, like $100,000, required to qualify for a discount.
- The term was first used around 1622 to mean an agent in financial transactions. Originally, it referred to wine retailers - those who broach (break) wine casks.
- call money rate
- Also called the broker loan rate, this is the interest rate that banks charge brokers to finance margin loans to investors. The broker charges the investor the call money rate plus a service charge. Investors who buy on margin will pay this rate.
- day order
- Order to buy/sell securities at a certain price that expires if not executed on the day it is placed.
- diluted shares
- A way of characterizing the number of outstanding shares that a publically held company could have. The diluted shares measure is the sum of the company's normally outstanding shares, the shares that would be outstanding if every warrant & stock option were exercised, and the shares that would be outstanding if every security convertible into the stock (e.g., certain preferred shares) were converted. This is sometimes used when computing earnings per share numbers. A larger number of outstanding shares means lower earnings per share, rather obviously; this is known as "dilution of earnings" or computation of "fully diluted" earnings.
- DNR, "do not reduce"
- This is usually assumed unless you specify otherwise, but different brokers may have different practices and some may require you to specify DNR if you want it. What it deals with is how the order is to be/not adjusted when dividends or other distributions occur. For example a $1/share dividend on a stock for which you have entered an order DNR brings the price closer to your bid or takes it further away from your offer. Without the DNR specification, on the ex-dividend date your order price is reduced by the amount of the distribution.
- elves index
- Louis Rukeyser's index of the opinions on the general stock market for the next 6 months. He polls 10 analysts, the same ones every week, to ask what they think the general trend will be, namely bullish (+1), neutral (0), or bearish (-1). The index range is -10 to +10.
- FOK, "fill or kill"
- This means do it now if the stock is available in the crowd or from the specialist, otherwise kill the order altogether. I never have found a situation to make use of that designation..
- going long
- Buying and holding stock.
- going short
- Selling stock short, i.e., borrowing and selling stock you do not own with the intention of buying it later for less.
- GTC, "good till cancelled"
- Order to buy/sell securities at a certain price (a limit order); the limit order stays in the market until you call specifically to cancel it. Some brokers restrict the length of time a GTC can remain open to "end of same month", "no more than 30 days" or some such thing, but with most it becomes a permanent part of the book until it gets executed or you cancel.
- MIT, "market if touched"
- Frequently used in the commodity futures pits. I seem to recall it being available on exchange-traded stocks as well, but I've never been such a hotshot as to use the designation *as such*. Instead, when I see serious overhead resistance at some point and have sufficient reason to want to unwind my position, I'll respond with a limit order below the resistance to close out my position. Similarly, when I see serious support and want to get into a position, I'll respond with a limit order above the support to gain entry. What I don't want to be doing is chasing the stock wildly (what market orders tend to do) just because some specific price got touched.
- MKT, "at the market"
- It doesn't matter how much you have to pay to buy nor how little you get on a sale, just do it now.
- overbought [oversold]
- Judgemental adjective describing a market or stock implying That people have been wildly buying [selling] it and that there is very little chance of it moving upward [downward] in the near term. Usually it applies to movement momentum rather than what the security should cost.
- over valued, under valued, fairly valued
- Judgmental adjectives describing that a market or stock is over/under/fairly priced with respect to what people believe the security is really worth.
- Uptick means the next trade is at a higher price than the previous trade. Meaningful for the NYSE and AMEX; not so meaningful for OTC markets (NASDAQ). Certain transactions can only be executed on an uptick (e.g., shorting).
- Downtick means the next trade is at a lower price than the previous trade. See uptick.
- An abbreviation of Public Limited Corporation. This means that the company is not American, where "Inc." is used instead. PLC is used by companies in many different countries, including Great Britain, South Africa, Australia, Hong Kong, etc.
- tender (v), to provide, to offer for delivery. Frequently used as a short version of "tender offer," which is a public invitation extended to shareholders of a company by an organization that wishes to buy the company (i.e., a bid to take control of the company). Following a tender offer, shareholders who have accepted the offer surrender ("tender") their shares in exchange for payment.
- treasury shares
- Shares taken from the company treasury (not the US Treasury!). Often occurs in the context of discussions about how companies fulfill share purchases within DRIP accounts.
- When an investment banker brings a company to market in an IPO. The banker agrees to purchase so many shares of ABC corp at $XX per share, less fees, and will resell them to the public immediately. However, the banker does not go it alone; just like an insurance company, the banker often seeks others to share risk. The companies that participate are collectively termed the underwriters, since the job of the subsidiary investment bankers is to lessen the banker's exposure to the risk that he cannot sell all the shares he agreed to purchase. The group is collectively referred to as the underwriting syndicate.
- The Washington Post's Business Glossary
Previous article is Trading: Introducing Broker
Next article is Trading: NASD Public Disclosure Hotline
Category is Trading|
Index of all articles