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Glossary
American Stock Exchange: Third most active market in the U.S., behind the New York Stock Exchange and the NASDAQ Stock Market. The exchange was founded in 1842 in New York City. Most stocks traded on it are those of small to mid-sized companies. Also called AMEX, and the curb exchange.
Arbitrage: Technique of buying and selling securities to take advantage of small differences in price.
Asked: Price that someone is willing to accept for a security or an asset. In the stock market, the ask portion of a stock quote is the lowest price anyone is willing to accept for a security or an asset at that time.
Bear market: When security prices decline 15% or more.
Bid: The price that someone is willing to pay for a security or an asset. In the stock market, the bid portion of a stock quote is the highest price anyone is willing to pay for a security at that time.
Block trade: Buying or selling 10,000 shares of stock or $200,000 or more worth of bonds.
Book value: The difference between a company's assets and its liabilities, usually expressed in per share terms.
Bottom fishing: Buying stocks whose prices have bottomed out or fallen to low levels.
Downtick: A sale of a listed security that occurs at a lower price than the previous transaction.
Float: In securities, the number of outstanding shares in a corporation available for trading by the public.
Market capitalization: The total market value of a company or stock. Market capitalization is calculated by multiplying the number of shares by the current market price of the shares.
Market maker: In a stock market, a trader responsible for maintaining an orderly market in an individual stock by standing ready to buy or sell shares. On a stock exchange, a market maker is known as a specialist.
MiFID: For Markets in Financial Instruments Directive, came into effect on 1 November 2007, and replaced the existing Investment Services Directive (ISD).
NASDAQ: An electronic stock market run by the National Association of Securities Dealers. Brokers get price quotes through a computer network and trade via telephone or computer network.
Price-to-earnings ratio (P/E): A ratio to evaluate a stock's worth. It is calculated by dividing the stock's price by an earnings?per?share figure. If calculated with the past year's earnings, it is called the trailing P/E. If calculated with an analyst's forecast for next year's earnings, it is called a forward P/E. Also called the P/E ratio or multiple.
Profit-taking: Selling securities after a recent, often rapid price increase.
Quote: A bid to buy a security or an offer to sell a security in a given market at a given time.
Reg NMS: The SEC publishes the rules adopted under Regulation National Market System (regulatory structure of the U.S. equity markets).
Sell-off: A period of intensified selling in a market that pushes prices sharply lower.
Short covering: Trades that reverse, or close out, short?sale positions. In the stock market, for instance, shares are purchased to replace the shares previously borrowed.
Short interest: Total number of shares of a given stock that have been sold short and not yet repurchased.
Short selling: A trading strategy that anticipates a drop in a share's price. Stock or another financial instrument is borrowed from a broker and then sold, creating a short position. That position is reversed, or covered, when the stock is repurchased to repay the loan. The short seller profits if he or she is able to repurchase stock at a lower price than he or she received in creating the short position.
Short squeeze: Occurs when the price of a security rises sharply, causing many short sellers to buy the security to cover their positions and limit losses. That buying leads to even higher prices, widening the losses and squeezing of short sellers who haven't covered their positions.
Smart Order Execution algorythms: New type of algorithm that take an adaptive rather than a linear approach to buying and selling stocks. When a trader sends an order to multiple destinations simultaneously, they make certain assumptions about those destinations. If they make the wrong choices, 'smart order execution' algorithms instantaneously adapt and re-route the orders.
SOR: Smart Order Routing, a trade execution system for market makers, internalization traders, and specialists.
Specialist: A stock exchange member who is designated to maintain a fair and orderly market in a specific stock. They are required to buy and sell for their own account to counteract temporary imbalances in supply and demand.
Spread: In stocks, the difference between the bid and asked prices.
Stop order: An investor's order to a broker to buy or sell a security when its market price reaches a certain level.
Ticks: Upward or downward price movements in a security or index. A downtick is the sale of a security at a price below the preceding deal. An uptick is a sale executed at a price higher than the preceding sale. For stocks, ticks are in 1/8 increments.
Triple-Witching Hour: Slang for the quarterly expiration of stock?index futures, stock?index options and options on individual stocks. Trading associated with the expirations inflates stock market volume and can cause volatility in prices. Occurs on the third Friday of March, June, September and December.
Uptick: A sale of a listed security that occurs at a higher price than the previous transaction.
(source: Wall Street Journal Interactive Edition)
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