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After Market or Secondary Market
A term referring to the fact that stocks are bought and sold by investors after they have made their debut on the primary market when they are first issued to the public. A similar concept to new home sales vs. resales. A home can only be sold "new" once. After that, it becomes a resale.

Primary Market
The market in which shares in a company are sold to the public for the first time.

Stock Exchange
A centralized market for buying and selling stocks where the price is determined through supply - demand mechanisms. Individuals and institutions buy and sell stocks in an auction-like forum.

Over-the-Counter (OTC)
A decentralized market in which dealers in diverse locations, tied together by means of an electronic trading framework, collectively collaborate to negotiate and execute transactions and create a market for OTC stocks.

Ticker
An electronic display showing stock symbols and current prices as orders are executed throughout the day.

Stock Symbol
The official symbol which identifies a specific company's stock and class of stock. Typically is an abbreviation of the company name. For example, the stock symbol for Intel Corporation is "INTC". The symbol for AT&T is "T".

Round Lot Trade
A trade involving 100 shares of stock or several blocks of 100 shares each. Traders and brokers prefer to work in round lots.

Odd Lot Trade
A trade involving some increment of 100 shares (between 1 and 99 shares). Typically smaller investors will buy and sell odd lots because they lack the funds to buy round lots of 100 shares.

Leverage
A concept that allows an investor to purchase a relatively large block of stock using a small amount of his own money. The balance of the purchase price is borrowed. Similar to the concept of purchasing a large house with little or no money down. Leverage amplifies both the potential return and the potential loss on the investment. Leverage adds risk to a transaction.

Margin Account
Where investors purchase stock positions using money borrowed from the brokerage firm. The brokerage firm requires that an investor deposit a portion of the market value of the security being purchased into a margin account. The rest of the purchase price is borrowed and paid back when the stock is sold. Buying on margin can be quite risky.

Depository
A centralized clearinghouse and repository for securities. A location where securities are actually stored and where the electronic day-to-day movements of those securities is facilitated. The Deository Trust Company, located in New York, is the largest and most important depository in the U.S.

Holder of Record
The owner of a security as recorded by the agent or issuer of the security.

Short Selling
The practice of selling a security that is not owned by the investor at the time and then replacing it later by buying the security at a lower price. A short seller is making a bet that the price of the stock will go down. He sells it today at a higher price, then buys it tomorrow at a lower price, conveys it to the lender and pockets the difference.

Covering a Short Sale
When an investor is compelled to go out and purchase the shares of stock that he "sold short" and deliver them to the lender in order to eliminate his "short position".

Cash Account
An account maintained at a brokerage in which an investor deposits cash that can be used to puchase securities.

Long Position or Buying Long
The practice of buying and holding stock with the expectation that the price of the stock will rise over time.

Arbitrage
Simultaneously buying and selling a security in two different markets to profit from short-term price differences that may exist in the two markets.

Diversification
The process of investing portions of available investment funds into different companies, industries, geographic areas, or other unrelated investments. A well diversified investment portfolio helps to mitigate risk by providing the possibility that losses in one sector may be offset by gains in another sector.

Premium
An amount paid for a security in excess of its face value or market value.

Discount
An amount paid for a security which is less than its face value or market value.

Preferred Stock
A term which refers to a specific class of stock which is senior to (receives preferential treatment over) the company's common stock. Typically preferred stockholders receive preference in the payment of dividends and on claims of company assets in the event of a bankruptcy.

Blue Chip Stocks
Refers to large, stable, public companies that have demonstrated a solid history of profitable growth and a steady stream of dividend payments.

Growth Stocks
Companies characterized by rapid growth in revenues and whose market value is expected to grow quickly. Many of these stocks struggle with profitability due to the high costs of financing growth. For the same reason, most growth companies do not pay out dividends to investors.

Income Stocks
Companies that tend to pay out a large and steady stream of dividends to shareholders. Stock price appreciation is generally somewhat limited for these companies since most of their profits are distributed to shareholders rather than plowed back into growth.

Market Value
The price that investors are willing to pay for a stock given available information and anticipated future earnings projections and dividend streams.

Initial Public Offering (IPO)
Refers to the first public stock offering undertaken by a company.

Stock Split
An increase in the total number of company authorized shares. Stock splits do not change the value of the total stock pool. Stock splits are typically done to reduce the per-share stock price and make the stock more attractive to small investors. For example, if an investor owned 50 shares of Coca Cola valued at $10 per share, and the stock was split on a 2 for 1 basis, the investor would surrender his old shares and receive 100 new shares valued at $5 per share. The total value of his stock investment remains the same ($500), but the number of shares and the price per share have both changed.

Par Value
An arbitrary value assigned to common stock shares at the time a corporation is formed or at the point that stock is issued in a public offering. Par value typically has no relationship to actual market value.

Capital Gain
The profit or gain that is made when a stock is sold for a higher price than was paid for the stock. For example, if a stock is purchased for $10 per share and sold 1 year later for $11 per share, then the capital gain on the sale of that stock is $1 per share. In this case, the investor would have generated a pre-tax annualized return of 10%. Capital gains are generally taxable when they are recognized - that is when the stock is sold. As long as an investor continues to hold the stock, however, she postpones capital gain recognition and defers the associated tax payments.

Dividends
Cash payments distributed to shareholders. Typically dividends represent some percentage of a company's total after-tax profits. Not all companies pay dividends.

Dividend Yield
Dividend yield is the annual percentage return represented by the annual dividend stream compared to the price of the stock. For example, if a company pays out twenty-five cents per quarter in dividends or $1 per share in total annual dividends, and the company's stock is currently trading for $20 per share, the dividend yield would be 5% ($1 divided by $20). A 3% or 4% dividend yield is generally considered good for a mature company that pays dividends. Many of the fastest growing companies choose not to pay dividends, preferring to retain their cashflow to fund their rapid growth. Other companies, such as Real Estate Investment Trusts (REIT's) pay out almost all of their profits as dividends - retaining just enough cash to maintain their operations.

Dividend Record Date or Ex-Dividend Date
A deadline established by the board of directors of a company on which an investor must be the stockholder of record in order to be eligible to receive the declared dividend. Some investors will buy a stock that pays out a high dividend just before the dividend record date and then sell it shortly after the dividend distribution in attempt to make a short term dividend gain. The risk, of course, is that the price of the stock could go down during this interim period, wiping out the dividend gain - or worse.

Proxy
A means by which an investor can exercise her voting rights in absentia. Typically involves filling out, signing and mailing in the appropriate paperwork.

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