Glossary

 

A

American Option

An option that may be realized every day, up to its expiry date. This, regardless of the fact that the option is traded in the stock exchange every day.

 

Analyst

A person whose job is to examine companies he specializes in, and recommend whether to buy or sell them in his opinions.

Annual Profit per Stock

The company’s annual total profit, after tax, divided by the number of stocks.

Arbitrage

A situation in which the investor enjoys risk-free profit, and in which two or more different prices exist for the same financial asset in two markets, as well as a situation in which there are two securities of the same company, such as an option warrant or a convertible bond, with a negative premium compared with the base asset – the stock. In this situation, one may perform arbitrage, in order to make immediate gains off of the price differences.

Ascending Tops

A behavior graph pattern of a certain security, indicating that each new peak is higher than its predecessor, and together they create a sequence of peaks.

In a technical analysis, such a diagram will indicate a bullish trend; this, contrary to descending tops, a pattern in which a stock peaks, declines, rises again, sets a new peak which is lower than the previous peak. The interpretation in this case will be that the security's trend is bearish.

Ask

The lowest price for which a security is offered for sale in the stock exchange in any given moment. This is the price the seller wishes to receive. It is met with the bid price, which is the highest price offered by the buyer.

To Average Down

A trader who increases the amount in a losing option, wishing to average the buying price so that the average buying price will be lower than the original price, assuming that when the stock price is corrected he will control the damages.

Averaging down is a risky move that usually results in failure and loss. A stock that began to decline will normally continue declining, and thus there is a change that the final loss will be larger after averaging down than before.

 

B

 

Balance

One of the types of financial statements, published once per quarter or year. The balance includes the assets, liabilities and equity of a specific company and it provides a temporary status as of the specific date.

Base Rate

This is the closing rate of the previous trading day, which actually forms the basis for the new trading day.

Bearish Market and Bullish Market

Terms borrowed from terms that entered the American market, aiming to indicate the trend in the market.

A bearish market = downward trend.

A bullish market = upward trend.

Hence the various accepted uses of these terms: bearish / bullish behavior.

Black Monday

Monday, the 19th of October 1987, in which the Dow Jones dropped by 508 points (30%).

The Black-Scholes Model

A model developed by two researchers, Fischer Black and Myron Scholes, to estimate the pricing of options. The model is based on the volatility of the return on a security, the interest rate, the rate between the base asset price and the option realization price, and the duration of time remaining until the options expire.

Also used to estimate option warrants.

Bottom

The lowest low point in which a security was traded in the last trading day, month, year etc.

Broker

A financial middleman between the seller and the buyer, for a commission.

Buy

A recommendation made by an analyst to a company's stock considering the analysis he performed regarding the expected profitable development and its current price.

Buy and Hold Strategy

A long term investment strategy that follows from the fundamental analysis of stocks approach.

Buy Order

An order to buy a specific security, in a certain amount and for a specific exchange rate.

Buying Power

The monetary value using which a trader can purchase stocks from an account in his possession.

Breakthrough

A situation in which, according to technical method, a security breaks through a resistance line, and the breakthrough is accompanied by abnormal trade turnovers, relative to the average. This is considered a sign of power.

 

C

 

Call option

This option grants the investor the right to buy the base asset on the realization date, for the realization price.

Central Bank

The country's central bank, in charge of managing the monetary policy. The bank usually decides the short term interest rate in the market, once a month.

The Chicago Board of Trade

The Chicago Board of Trade. This is an exchange in which future contracts are traded, the oldest in the US. This exchange was founded in 1848 and it engages in trade of future contracts for agricultural products such as corn, coffee and beef.

The CME Chicago Exchange

The Chicago Mercantile Exchange or the CME is an exchange of foreign exchange, indexes, options as well as emerging markets.

The Company's Market Value

The datum obtained by multiplying the registered for trade capital by the stock's rate.

The Consumer Price Index

Manifests the cost of the basket of products consumed by the average family. This basket is determined once every couple of years by the central bureau of statistics in accordance with the results of the family expenses survey it conducts.

Convertible Bonds

A bond that bears interest and that may be converted for a stock. Combines properties of bonds as well as the conversion of a stock option into a stock.

Current Assets

Cash, debt accounts, inventory and other assets that may be realized into cash within a year.

 

D

 

DAX Index

This is a weighted index of the 30 stock rates of the leading companies traded in the securities exchange in the Frankfurt Exchange.

Day Traders

Traders that intensively buy and sell within the dame trade day, so that they have no open positions in their account by the end of the trading day.

Deflation

A situation in which the prices of goods and services decrease. This is the opposite of inflation.

Deletion of a Security

The deletion of a security from the exchange, as per the exchange's decision for any reason, for example due to failure to meet terms of a minimal rate of possession by the public, low tradability and so on.

Deregulation

A reduction of the government involvement, especially the legislative involvement, aiming to encourage competition and an efficient, free market.

Derivative

A security whose value is based on another security. For example: stock options, or index options.

Discount

A term that has the same meaning in various contexts, such as: the difference between the current price of a bonds relative to its coordinated value, when it traded for a price lower than its coordinated value.

Dividend

A cash payment made by the company to its stockholders, out of the company's profits. The dividend is distributed among the stockholders, according to the rate of their ownership of the company's capital.

The company does not have to distribute a dividend, even if it is making profits. The company cannot distribute a div that is higher than the gains it accrued.

Double Bottom

A term borrowed from the technical analysis theory. It indicates a chartist pattern that indicates that a stock has dropped to a certain bottom, recovered, decreased to the same level and recovered again, from this level, upward. A sequence of points in which the stock's decrease is blocked creates the support line.

Double Peak

A sequence of points in which the stock's increase is blocked, and a resistance line is created.

The Dow Jones index

An index of stocks that includes 30 stocks of the largest companies in the US (mostly industry), that are mostly traded in the New York Exchange.

 

E

 

Economic Growth

A process of growth in the national product, over a certain period of time. The growth is calculated by dividing the national product as of a certain date by the national product as of an earlier date, while deducting the inflation that took place between the two dates.

Electronic Communication Networks – ECNs

ECNs are networks used to efficiently, quickly and cheaply perform trading activities. The ECNs void the need to receive third party services (regular market makers or over the counter market makers), and thus void the need for an additional middleman in order to buy stocks. The ECNs introduce the buyers and sellers electronically through the broker companies with whom they work, and allow them to buy and sell directly to one another.

Equity (Capital)

The company's capital.

Equity

The total of the company's assets, after deducting its various liabilities. If the company will sell all of its assets, repay all of its debts, it will have a remainder called the company's equity.

European Option

An option that may only be realized on its expiry date, regardless of the fact that the option is traded in the stock exchange in any trading day.

Exchange

A market of stocks, options and future contracts. Examples of American Exchanges: the NYSE, the NASDAQ and the AMEX.

Exchange Rate

The exchange rate between one currency and the other. For example: the exchange rate of the NIS relative to the USD.

 

 

F

 

The Federal Open Market Committee

The committee that determines the US's monetary policy. Its discussions are confidential, and its decisions regarding the short term interest rate may greatly influence the behavior of the stock market, the bonds market and the US financial market.

The "Fed's" Managers Council

The US's Central Bank's Managers Council. It has seven members that are appointed by the president and approved by the senate, for a period of 14 years.

Fibonacci

The Fibonacci method originates from a mathematical series invented by the Italian mathematician named Leonardo Fibonacci, in the 13th century.

Financial Markets

A term that includes various types of markets such as the bonds market, the stocks market, the foreign exchange market and so on.

Fiscal Policy

The government's budgetary policy as it manifests in the annual budget and the expenses and incomes components appearing in it, and how balanced they are.

Fixed Exchange Rate

One currency's fixed exchange rate relative to a different currency as a part of a policy to stabilize the exchange rate.

The FTSE 100 Index

An index of the 100 companies with the highest market value traded in the London Exchange.

Future Contracts

A future contract is a contract to buy / sell products for future delivery, when the amount of assets and their price at the time of delivery is determined in advance. Future contracts may be bought and sold at any time and they are traded in the future contracts exchange.

 

G

 

Gap – Price Gap

When a stock opens the trading day in a different price than the price in which it closed the previous trading day.

Graph

A graphic display or a technical configuration over a pre-defined period. A daily graph created information over a period of months or years. A weekly graph creates information for years, and an inter-daily graph represents the trading movements for that day.

 

H

 

The Hang Seng Index

A weighted index of the 33 leading companies traded in the Hong Kong Securities Exchange.

Heavy Turnover

A larger than usual turnover for a single stock or for the entire market.

Hedging

A trading strategy aimed at reducing the risk of loss by taking counter actions that set off the risk.

 

I

 

In the Money Option

A call or put option in which the realization price is lower or higher, respectively, than the current price of the base asset.

Inflation

An increase in the market's price level, as it is manifested in the consumer price index that is measured once a month by the Central Bureau of Statistics.

Inside Day

An inside day is a day in which the price range is locked within the previous day's price range.

Inside Information

The use of early information regarding business developments in the company, in the control of it and so on, that is likely to influence the stock's market price.

Actions in securities that are made while using inside information are considered illegal, especially the use of inside information by a central insider in the company.

Intermediate Parking

A "safe" investment aiming to, in the meanwhile, examine other investment channels, wait for clarifications and then decide on the investment for the longer term.

Issued Capital

The number of stocks already signed by the stockholders, out of the registered capital.

 

 

L

 

Limit Order

This is a buying or selling order with a limitation on the price. Such an order can have a lower or higher rate than the security's market price.

Long

When you buy a stock for a price you consider cheap, aiming to sell it later for a higher price.

 

M

 

Margin

The credit margin received by the investor in order to make the investments, beyond the investment of his own funds.

Market Maker

A specialist in the securities exchanges, who buys and sells certain securities for his own account, and by holding an inventory of a certain security, in an attempt to stabilize a volatile market's movements and make the market more liquid.

Market Order

A market order is an order to buy or sell immediately, and for the best price that may be achieved at the time of performance. A market order ensures performance at any time, as fast as possible. The exchange prioritizes market orders over limit orders and thus traders usually use this order when a fast entrance or an exit from a stock is required. There is concern that in limit orders, the order will not be performed completely.

The risk in market orders is in stocks with a very low turnover, in which the spread may be very large and the trader will not control the price he receives.

Monetary policy

A policy of a central bank, performed by changing the interest rate in the market, printing money, changing the scope of the monetary tenders on the interest rate and changing the extent of bonds issuance.

 

N

 

Naked Option

An option that is held by an investor, without him holding the base asset against the option.

NASDAQ

The second largest exchange in the US (after the NY exchange). This is a computerized system to trade in securities.

Net Profit

The difference between the company's income and expenses after tax.

Neutral: Market Returns

A lukewarm recommendation by an analyst, according to which the stock is likely to yield returns that are similar to the market returns.

The Nikkei index

An index of the 225 largest companies traded in the Tokyo securities exchange.

 

O

 

Off-Floor Transaction

A deal that is not made through the securities exchange's sequence system. Such a deal can take place outside of the exchanges trading hours, or not on the regular trading days in the exchange.

Such deals are usually made when a buyer and a seller wish to trade in a large package of stocks and they do not wish to influence the stock's rate during the trade in the exchange.

Original Bonds

A document issued by a company, government or corporation that was authorized to do so, in which the issuer undertakes to pay amounts including an interest, in a stated date or upon the realization of a certain condition.

Out of the Money Option

A call or put option in which the realization price is higher or lower, respectively, than the current price of the base asset.

Overbought

A state of overbought is a technical analysis term for a condition in the market / stock, in which the prices increased steeply, within a short time as a result of fundamental information or any other market information. In this situation, an experienced day trader who owns a stock in the exchange that is defined as "overbought" will reduce his holdings or raise the defense order aggressively in order to "lock" profits, expecting a downward correction in the near future.

Overprice

A situation in which the stock is traded for more than its market value according to estimates.

 

P

 

Parent Company

A company that has control, meaning it holds at least 50% of the issued stock capital and voting rights in the subsidiary company.

Partial Exit

Partial realization of the amounts of stocks we have a position on.

Pink Sheets

The pink sheets list is a daily list of stocks that do not meet the criteria for trade in the main exchange. In the past, the list was published on pink paper, hence the name. In the daily list, the stocks' markings, the supply and demand prices and list of market makers who trade in them appeared. The pink list stocks are stocks that are not required to meet the SEC's minimal requirements (market value, equity, extensive reporting level), and are thus traded over-the-counter, in the secondary exchange. The trade in them is also referred to as over the counter trading, or OTC, the pink stocks may be recognized according to the suffix of their marking with the letters PK.

Preferred Stock

A documents that grants its owner preferred rights compared with owners of regular stocks. The preference is expressed in the division of the company's profits, or when dissolving the c and distributing its assets.

Privatization

A process of realization of assets that are owned by the government, and transferring them to private owners.

Public Offering

A process of raising capital for the company by issuing a security, against cash to be received from the investors. Securities are offered to the investors through the prospectus of the company that wishes to raise capital. The company must meet the exchange's criteria, publish the prospectus drafts, obtain the approval of the prospectus by the Securities Authority and eventually raise the capital from the public through the underwriting mechanism.

Purchase / Sale Commission

A commission paid by the trader/ investor to the broker when making the deal.

 

Q

 

Quarterly financial statement

A report published by public companies once every three months, which includes data on the company's financial situation, such as gains / losses. The statement includes a review of the company's business situation and the recent and/or future developments.

Quotes

Quotes are the present prices in the stock's level 2 (ask & bid).

 

S

 

Scalping

When stocks are bought and held for several seconds, performed at top speed as the trader intends to realize a profit of several cents, up to several dozens, in an increasing or decreasing stock, within several seconds. Only suitable for experienced traders.

Sell

A selling recommendation given by an analyst for the stock, either due to its price, expected developments in the company, or in the sector to which it belongs.

Sell Order

An order to sell a specific security, in a certain amount and for a specific exchange rate.

Short

A short is a way to generate profits when the stock's price in the capital market is declining. In this manner, the seller sells securities he does not own with the intention of making profits at a later stage if their value indeed decreases. A trader receives a security from his broker as a loan, and sells it in the market, and he then must re-purchase it to return it to the broker. If the security's rate decreased between the borrowing time and buying time, the trader has made a profit; as the broker demands the stock back regardless of the price. Thus, if the trader sold for an expensive price and bought for a cheap price, the difference is his profit.

Underpriced

A security that is traded below its value according to analyst opinion.

Short

Selling short stocks. Selling stocks the sellers does not own, intending to benefit from the decrease in the product's value.

The Standard and Poors Index

This is a weighted index of the 500 companies with the largest market value in the American economy.

Stock

A document that grants its owner ownership of the company, a right to receive dividends from the company's profits, a voting right in the company and the right to receive the relative part of the assets remaining after the dissolution.

Strong Buy

A strong buy recommendation made by an analyst to a company's stock considering the analysis he performed regarding the expected profitable development and its current price. This recommendation is one level above a regular buy recommendation.

Specific Suspension of Trading

An exchange procedure of a short trading suspension following the publication of a report / a substantial message by the company and so on.

Sometimes, prolonged suspensions of trading take place for several days, as a decision by the exchange's board of directors regarding the entire market, or the trading by a specific company.

Subsidiary Company

A different company (the parent company) holds at least 50% of the issued stock capital and voting rights in the company.

Swing

When stocks are purchased with the purpose of holding them for several trade days. This method is called swing.

 

T

 

Tangible Asset

Assets such as real estate and equipment.

Target Price

A term used by analysts when analyzing a company. Analysts usually determine the target price for the upcoming 12 months.

Technical Analysis

A method of evaluation and analysis. In this method, the security's behavior graph is examined. The technical analysis examines the security's historic behavior and accordingly, tries to estimate its future behavior.

This method ignores the company's economic parameters and concentrates on the assumption according to which the investor's behavior results from the security's current price relative to its former price.

The examination of the graph in the technical analysis focuses on three waves: the long term, the medium term, and the short term.

Technical Test

The term is borrowed from the literature on technical analysis. The technical analysis of the market / stock / currency and so on… may be its ability to last above a support level or break through its resistance level.

Tender Offer

An offer to buy stocks usually made with the intention of gaining full control of the company and erasing its stocks from the trade in the exchange, or to control it. The offer may be friendly or hostile.

Tip

Information of an expected development in the company. Sometimes involves giving away inside information, which is a violation of the law.

The Trading Range

The trading range is the lowest and highest price in a specified period of time.

Trading Volume

The total number of stocks that are traded in the market on a given trading day, or a given period of time. In the US, it is customary to relate to the number of stocks that exchanged hands and in Israel, to the deals' market value.

In technical analysis, the current trade turnovers compared with the past are very important as an indication of the future direction. An increase in the trading volumes constitutes support of the validity of the dominant trend.

Trend Line

A diagram in the stock's technical analysis, made regarding the past directions of a moving stock, aiming to help predict future price movements.

Trin $

An important index for day traders. This index is calculated according to the amount of increasing stocks, divided by the decreasing stocks, and the result of this division is divided by the turnover of all the increasing stocks, divided by the turnover of the decreasing stocks. The result: when the index is declining, the market is a bull market, and when it is rising, the market is a bear market.

 

 

V

 

Volatility

A feature of the behavior of the market / stocks / bonds or another specific financial asset. The higher the volatility, the riskier the asset.

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