Glossary of Terms
(Some abbreviations are for communication on the Trading Room)

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Action – The price movement, volume and behavior of a stock or overall market.

Advanced/Decline ratio – shows the ratio of advancing issues to declining issues.

Aftermarket – A market in which an investor purchases a security from another investor rather than the issuer. These transactions occur 90 minutes before the regular market opening and up to 3 hours after the regular close, also called aftermarket hours.

Allocation – The distribution of a limited quantity of investment inventory; a term often used in IPO’s when shares of stock are allocated to various investors, mutual funds, banks and brokerage firms. The best clients get the most shares when market conditions are desirable for IPO’s.

American Depository Receipt (ADR) – A negotiable certificate issued by a U.S. bank representing a specific number of shares of a foreign stock traded on a U.S. stock exchange. ADRs make it easier for Americans to invest in foreign companies, due to the widespread availability of dollar-denominated price information, lower transaction costs, and timely dividend distributions. The trend the last couple of years has been for foreign companies to buy shell companies and promote company’s stock, especially on the NASDAQ.

AMEX – American Stock Exchange; American Stock Exchange is the second-largest stock exchange in the U.S., after the New York Stock Exchange (NYSE). In general, the listing rules are a little more lenient than those of the NYSE, and thus the AMEX has a larger representation of stocks and bonds issued by smaller companies than the NYSE. Some index options and interest rate option’s trading also occurs on the AMEX. The AMEX started as an alternative to the NYSE. It originated when brokers began meeting on the curb outside the NYSE in order to trade stocks that failed to meet the Big Board’s stringent listing requirements, but the AMEX now has its own trading floor. In 1998, the parent company of the NASDAQ purchased the AMEX and combined their markets, although the two continue to operate separately.

ARCA – Archipelago Exchange, now owned by the NYSE, on which both stocks and options are traded. Established as one of the first electronic communication networks in the 90’s, ARCA offered faster execution with lower costs. Currently, they are estimated to handle 20% of the trading volume.

ARMS Index – developed in the late 1960’s by Richard Arms, who is still active in the market. This market indicator shows the relationship between the number of stocks that increase or decrease in price and the volume associated with stocks the increase or decrease. It is a short term trading tool that shows whether volume is flowing into advancing or declining stocks. If more volume is going into rising stocks, then index reading will be lower than 1.0; If more volume is going into declining stocks, the index will be greater than 1.0.

Ask – the price at which you would pay for a stock on a market order; the price which a market maker or specialist will sell a certain number of shares at a specific price.

Asset allocation – The process of dividing investments among different kinds of assets, such as stocks, bonds, real estate and cash, to essentially reduce risk by diversifying between different asset classes This is a key concept in financial planning and money management and is valid for all investors, individuals or corporations.

Auction – A method for selling an asset to the highest bidder.

Authorized Shares – The number of shares of stock that a company can issue as designated in the company’s charter (but it can be changed with a shareholder vote). Usually a much greater number of shares are authorized than required, in anticipation of any change in needs in the future. Also called authorized stock or shares authorized.

Average Daily Volume – The number of shares traded per day, averaged over some time period, usually one year.

Average Down – Buying additional shares of a stock which one holds a position in, and which has dropped in price since the earlier purchase with the concept of lowering the average price paid for all shares in the stock. Generally discouraged by short term strategists.

 

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