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The financial world has developed a special investment-oriented language to help describe the stock market, investments, securities for the stock market, stock market analysis, and its conditions. At times you may be confronted with a term which is totally alien or has a completely different meaning from what you thought. Misunderstanding these terms can sometimes lead to the wrong conclusion, and that can cost you money!

What you don't know can hurt you.

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Absolute Breadth Index

A market momentum indicator that measures how much activity, volatility, and change is taking place on the PSX while ignoring the direction prices are headed. High readings indicate above average market activity and change, while low readings indicate lack of change. Historically, values above 450 typically lead to higher prices three to 12 months later. The Absolute Breadth Index is calculated by taking the absolute value of the difference between PSX Advancing Issues and Declining Issues.

Accounts Payable

A species of short-term debt, accounts payable are simply bills from suppliers for goods or services purchased on credit. They must be paid within 12 months.

Accounts Receivable

Money owed to a business for goods or services purchased on credit. Most businesses extend credit; although restaurants, supermarkets and others are paid on the spot for the things they sell, businesses generally grant 30 days or more to pay. Thus, when a sale is made, a ""receivable"" is recorded in the assets column of the balance sheet. Receivable turnover is an important indicator of how effectively a firm is collecting on its receivables, and whether a cash crisis might be in the offing

Accumulated Depreciation and Depletion

The cumulative charges against the fixed assets of a company for wear and tear, obsolescence, or the depletion of a natural resource -- oil in the ground, for instance -- as it is used up.

Accumulation And Distribution

A market momentum indicator that associates changes in price with volume. The indicator is based on the premise that the more volume that accompanies a price move, the more significant the price move. When this indicator moves up, it shows that the security is being accumulated (i.e., bought), as most of the volume is associated with upward price movement. When the indicator moves down, it shows that the security is being distributed (i.e., sold), as most of the volume is associated with downward price movement.

Actual Earnings

The actual Earnings Per Share (EPS) reported by the company -- as opposed to the EPS estimates predicted by analysts.

Adjusted gross income

An individual's gross income after a limited group of expenses is subtracted. These expenses range from business expenses, capital loss deductions, expenses from rent or royalty income, individual retirement account contributions, alimony and other expenses.

Advance-Decline Index

The ratio of advancing stocks to declining stocks, the advance-decline index over time gives an indication of where the broad market has been going -- a trend that is sometimes masked by indexes, which contains just 30 stocks, all large industrial concerns whose fortunes don't always reflect the overall market.

Advisory Services

Privately circulated publications that comment on the future course of financial markets and make buy and sell recommendations. A subscription is usually required.

Aggressive Growth Funds

Of all mutual funds, aggressive growth funds offer some of the highest potential returns but with above-average risk. Aggressive growth funds look for stocks that may rise sharply in value, rather than securities that offer shareholders steady income through dividends. Many of the funds invest in new issues or in stocks of troubled companies. Fund managers may also use options or other tools as part of their effort to boost the fund's return.


A plan that enables a borrower to pay off a debt, such as a mortgage, gradually through periodic payments of principal and interest.

Annual Return

Annual return on investment is calculated by taking the value of the investment held at the beginning of the ROI period compared to the current value. In other words:

((Current Value) - (Beginning Value) + (Income)) / (Beginning Value), where

(Current Value) = (the current total shares) * (the last price),

(Beginning Value) = (number of shares held prior to the period - any shares sold) * (the closing price prior to the period) + the "Cost Basis" of any shares added in this period (Buys, Reinvest, Add Shares, etc), and

(Income) = any income events such as Dividends/Interest (not Reinvested) and Realized gain/loss from Sells in this period.

For example, assume that on 1/1/99 you owned 1000 shares of PIAA (which had been purchased prior to this date), the last price (on 12/31/98) was Rs.69 11/32, and you still own the 1000 shares and the current price is Rs.90 1/8. The ROI (YTD) for MSFT would be calculated:

((1000 * 90.125) - (1000 * 69.34375)) / (1000 * 69.34375) = 20781.25/69343.75 = 29.968%

If you had purchased 200 additional shares at Rs.75/- each during this period, the formula would be modified as follows:

((1200 * 90.125) - (1000 * 69.34375 + 200 * 75)) / (1000 * 69.34375 + >200 * 75) = 23806.25/84343.75 = 28.225%


Convert to a yearly basis. If inflation was 1% in a given month, it is considered to be running at 12% on an annualized basis. Note that annualized figures typically ignore compounding.


A contract between you and an insurance company where you pay the insurer a specified amount and, in return, receive regular payments either for life or for a stated period of time. The money grows on a tax-deferred basis until you begin receiving it, usually after age 59 1/2. At that point, you can continue to postpone the tax bite by ""annuitizing"" the money -- in other words, converting the assets into a monthly stream of income.

There are two basic types of annuities: fixed and variable. If you choose a fixed annuity, the premiums you pay will be invested in fixed-rate instruments such as bonds or mortgages.

A variable annuity works more like a tax-deferred mutual fund. Your premiums could be invested in a variety of items, ranging from individual stocks and mutual funds to real estate and certificates of deposit. Thus, your return will vary depending on the success of the portfolio.

Annuity, Deferred

An annuity contract for people who want to save on a tax-deferred basis for many years, then convert to a payout schedule once they retire. When purchasing such an annuity, be particularly wary of potentially high fees and expenses. Most companies do not charge an initial commission, or load. Instead, they levy a substantial surrender charge of as much as 10 percent of your principal if you want to cash out or transfer your annuity to another company within the first five or ten years of the contract. However, some annuities permit a free withdrawal provision after the first year and for every year thereafter that surrender charges apply. This allows you to withdraw a certain percent (usually 10 percent) of the accumulated account value.

Annuity, Immediate

An annuity where payouts begin shortly after you purchase the contract, usually recommended for people who are about to retire. The size of the monthly payouts will primarily be based on how much you paid for the annuity. Part of each payment you receive will be considered a return of your original investment; the rest will reflect interest earned during the payout period.

Annuity, Single Life

A pension, sometimes called a straight-life annuity, that provides you with a regular payment every month after you retire for the rest of your life. If you choose a single-life annuity and live longer than actuarial tables suggest you will, the payments will keep coming and the annuity will have worked in your favor. But if you die before the average age, the remaining cash will either revert to the pension fund or -- if the pension fund permits -- be paid in a lump sum to your estate.

Annuity, Split

An annuity contract where the principal investment is split between a deferred annuity and an immediate annuity. A split annuity can help you increase the after-tax earnings from other fixed-rate investments you have made, such as a certificate of deposit.

Before you rush out to purchase a split annuity, there are a few issues you need to consider. For one, annuities aren't as liquid as CDs. They also involve higher surrender charges.

It's also important to remember that annuities have different estate and income tax implications at death than CDs do. And if interest rates are low, you might have to choose an annuity that has a variable rate rather than a fixed-rate -- a selection that may result in higher returns but will also increase your risk.


Computed as market value less cost basis. It answers the question, how much money did I make?


An investment technique used by big Wall Street firms and high-rolling investors to cash-in on seemingly insignificant differences between stock indexes and futures contracts on those indexes. Indexes, and futures contracts on those indexes, don't always move in lock step. When they get out of whack, a nimble arbitrageur can make a lot of money by buying the less expensive one and selling the one that's more expensive.

""Arbs,"" as they're called, depend on computers. When all the arbs move in the same direction, the overall market can go haywire. Anytime the stock market dramatically surges or falls, it's a pretty safe bet that the arbitrageurs were somehow involved.


price you pay when you buy, and is higher than the bid. In over-the-counter trading, securities dealers profit from the spread between these two -- so much so that they are often willing to pay discount brokers for ""order flow."" These payments help make it possible for discounters to charge customers rock-bottom, flat-rate commissions per trade. The question is whether discounters are choosing the highest payers rather than dealers who can get the best price on a trade.

Ask Size

The number of shares the seller(s) offering the ask price are willing to sell.

Asset Allocation

An investment strategy where you decide what percentage of your investment portfolio should go into stocks, bonds, or other asset classes. After you set up your portfolio based on your asset allocation strategy, adjust your holdings on a regular basis to maintain these percentages. Your decision in this respect is perhaps the single biggest factor that will determine your long-term investment outcome, so make it carefully. The asset allocation model you choose should be based on how much risk you are willing to take.

Asset Management Account

A type of checking account offered by some banks and brokerage firms. The typical asset management account allows you to write an unlimited number of checks each month. The bank or brokerage house will also provide a comprehensive statement of the account's activity at the end of the year. You can use the account for all your banking and investment needs, which helps to make your own bookkeeping easier.

Asset Turnover

This ratio, which is simply sales divided by assets, can show both how capital intensive a business is, and how well it uses assets to produce revenue. Some businesses -- software makers, to cite an extreme example -- can generate tremendous sales per dollar of assets. Electric utilities and cable TV firms, on the other end of the scale, require a huge asset base to generate sales.


Any item of value owned by a business. A firm's assets are listed on its balance sheet, where they are set off against its liabilities. The assets of a business are the capital stock that make it possible -- with the addition of labor -- for the company to generate a profit. Assets may include factories, land, inventories, vehicles and other items. But not all assets are created equal. Some assets, such as cash, are easy to value and liquidate. Others, such as buildings and farmland, are quite real too, if somewhat more difficult to value accurately. These kinds of assets are collectively known as tangible assets. Intangible assets, such as goodwill, also can be important to the success of the enterprise. Goodwill, for instance, could include a valued brand name gained in an acquisition (a famous brand, such as Coca-Cola, doesn't normally show up on a balance sheet otherwise). In general, firms are required to carry assets on their books at cost less depreciation. This conservative principle means that the balance sheets of most companies understate the true value of their holdings. Land purchased 50 years ago and carried at cost might be worth many times the initial price, for instance. Conversely, a firm that owns a brand new buggy-whip factory might in fact overstate the value of its assets by carrying them at cost. For banks, most assets are in the form of loans (deposits are liabilities).

At-the-Money Option

An option for which the underlying investment sells at the same price as the strike price of the option.

Average Cost

The total cost for all shares of an investment divided by the number of shares held. You can average up or average down, depending on the direction of prices and your faith in a given company.

Average Credit Quality

A measure of the overall credit quality of a given bond portfolio.

The average credit quality is derived by taking the weighted average of the credit rating for each bond in the portfolio. For corporate-bond and municipal-bond funds, this section contains a credit analysis of bonds in the portfolio showing the percentage of fixed-income securities that fall within each credit-quality rating as assigned by Standard & Poor's or Moody's.

Average credit quality offers a quick way of assessing how much credit risk (in other words, default risk) there is in a given bond fund, and thus how aggressive the fund's style is. The lower the overall credit quality, the higher the risk.

Average Daily Volume

The number of shares traded in a given number of days, divided by that number of days. This is useful for judging how liquid a stock is (thinly traded issues are riskier) and whether any one day's volume marks a sharp departure from the norm. The latter usually indicates some news or change of circumstances that could be relevant to shareholders.

Average Estimate

The average of earnings estimates put forth by leading analysts covering a given stock.

Average Return

The total return of the mutual fund divided by the number of years used in the calculation.

System response, Account access times, Trade executions may differ due to various factors including Market conditions, System performance, quote delays. There can be considerable risk of loss in electronic trading.
It is therefore important for you to consider if such trading is suitable for you with respect to your situation and financial resources.

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