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RothIRA.com Financial Glossary

Acid-Test Ratio
The value of the total assets of a company, less the value of their inventory and compared to the total value of their current liabilities. The Acid-Test Ratio represents how well the company meets its financial obligations over a short-term period.
Acquisition
When one company purchases a smaller company. An acquisition is not the same as a "merger", which is when two companies of about the same size combine forces as a single company.
Adjustable Rate Preferred Stock
A preferred stock with dividends that change (usually quarterly) based on changes taking place with Treasury Bill Rates.
Aggressive Growth Fund
Aggressive growth funds are mutual funds having a goal of making the most capital gains, acquired by taking high risk endeavors.
Bear Market
A condition of the market during which time the price of securities are decreasing. Investors are pessimistic and their negativity causes them to sell which contributes to further pessimism. If the Dow Jones Industrial Average or Standard & Poor's 500 Index drop 20% or more over a two month period, most consider this entry into a bear market.
Blue-Chip Stock
Stocks from nationally recognized companies that have a strong record of being financial stable and reliable. They are often able to withstand economic downturns.
Bull Market
A condition of the market during which time the price of securities are increasing or expected to increase. The term can be used to describe anything traded, including bonds, commodities and currencies, but is most often used to describe the stock market.
Commodities
Goods used in commerce that are often used to produce other goods and services. When traded on an exchange, commodities must meet minimum standard requirements, called "basis grade".
Currency
Accepted form of money, issued by the government, circulated within an economy, and includes paper and coins.
Dividends
The amount a company distributes to their shareholders. It's often calculated in a dollar amount as a portion of the company's earnings, based on either a predetermined dividends per share amount or as a percentage of the current market price.
The Dow Jones Industrial Average (DJIA)
A price-weighted average of 30 stocks traded on Nasdaq and the New York Stock Exchange (NYSE).
Equity
Assets available immediately that could be sold for cash. Equity may be in terms of stocks, cars, or real estate, etc.
ETF (Exchange-Traded Fund)
A security that tracks a commodity, group of assets, or index and trades like a stock on an exchange. ETFs fluctuate in price during the day as they are sold or bought.
Forex Market
A market in which investors can buy, sell, exchange and speculate on currencies. It's made up of commercial companies, banks, hege funds, investors, forex brokers, and investment management firms. The currency market is considered to be the largest financial market in the world, and processes trillions of dollars worth of transactions on a daily basis.
Hedge Fund
An aggressively managed portfolio of investments having the goal of making high returns. Advanced investment strategies are leveraged in both domestic and international markets. Hedge funds are often private investment partnerships and require large initial investments which must remain in the fund for at least 12 months.
Index
A term to describe the statistical measure of change in a securities market or economy. An index is also an imaginary portfolio of securities that represent a particular market.
IPO (Initial Public Offering)
Often issued by small, young companies, an IPO is the first sale of stock used to generate capital for expansion. Large privately owned companies sometimes issue IPO's to become publicly traded.
Keogh Plan
A retirement plan set up by self-employed people and for their employers as an opportunity to save for retirement with a tax-deferred plan.
Laddering
An investment technique where bonds an other products that mature at intervals are bought, resulting in the investor receiving regular income.
Large Capital Funds
Known as the high risk/high return opportunities, these funds manage money from investors looking for private equity stakes in those companies showing strong growth potential.
Liquid Assets
Assets from established markets that can be sold quickly. Liquid assets can be quickly converted to cash to reduce the impact on the price received. Examples include stocks, government bonds, and foreign exchange markets.
Long Position
The purchasing of a security such as a stock, currency, or commodity with the anticipation that the value of the asset will appreciate in value if the market price increases.
Modified Adjusted Gross Income (MAGI)
Modified Adjusted Gross Income is used to determine IRA eligibility. The calculation starts with adjusted gross income and then adds back in a number of items such as IRA deductions, self-employment tax, rental losses, student loan interest and other items. The calculation is explained in detail at IRS.gov.
Option
Represents a contract sold by one party to another. This contract offer the buyer the right to buy or sell a security or other asset at an agreed upon price on a specific date or a period of time but does not give obligation. Options can be used in a variety of ways with traders using them to speculate and hedgers using them to reduce the risk of holding an asset.
Penny Stock
A stock trading at a relatively low price, generally outside of the major market exchanges. They are often considered to be high risk because they lack liquidity, small capitalization and limited following and disclosure.
Portfolio
The collection of financial assets including stocks, bonds, and cash equivalents. Portfolios are held by individuals, banks, or other financial institutions. Portfolios are often managed by financial professionals.
Premium
The premium is the price of the option being purchased. A premium may also refer to the monetary credit one gets when selling an option.
Put Options
An option contract designates the right and not the obligation to sell a specific amount of a security at a specific price and time. A put option is the opposite of a call option, giving the holder the right to purchase shares.
Risk
Refers to the chance that an investor's actual return will be different than anticipated. A risk may include the possibility of losing all or some of the original investment amount. The risk is measured by calculating the historical returns or the average returns of a specific investment. A risk may also be described as a person, company or other institution that owns at least a share in a company.
Short Position
The sale of a security, currency or commodity with an expectation that the value of the asset will decrease.
Short Sale
The sale of a security that the seller does not own, for less than the amount owed. For example, real estate can sometimes be sold as a "short sale"; for less than the amount owed to the mortgage company.
Small Cap
The value of the stock's market capitalization. Most brokerages define small-cap stocks as companies with a market cap between $300 million and $2 billion.
Stock
A security that gives ownership in a corporation.
Stop-Loss Order
An order designed to limit an investor's loss. A stop-loss order is placed with a broker to sell a security if it reaches a specified price.
Technical Indicators
Used by active traders to analyze short-term price movements, technical indicators predict future price levels based on previous performance patterns.
Volatility
A statistical measure of the dispersion of return on a given security or market index. It can be measured with the standard deviation or variance. The higher the volatility of a security or market index, the riskier it is.

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Important Roth Information

Each year, the IRS updates the rules for Roth IRA. Here are all the details for 2013 & 2014: