Index Hugger

A managed mutual fund that tends to perform much like a benchmark index such as the S&P 500, which gives it the reputation of being a "closet index fund."The majority of actively managed funds are expected to outperform the so-called average performance produced by passively managed index funds.
Also known as a "closet tracker" or "pseudo tracker".
Investors pay fund investment managers higher fees to do better than index funds, although managers often fail to outperform the index.
A high R-squared factor, a mutual fund risk analysis measure, between 85 and 100 indicates that a managed fund's performance patterns are in line with the fund's benchmark index. If this is the case, investors may be better off investing in the index itself, which has lower portfolio turnover and lower expense ratio features.

Source: http://www.investopedia.com/terms/i/indexhugger.asp

Halloween Massacre

Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, announced that all income trusts would be taxed in a similar manner as corporations at a rate over 30% on taxable income, causing unit holders' values to decrease dramatically virtually overnight.
Income trusts, which were permitted to make distributions to unit holders on a pretax basis under old Canadian income tax laws, were a popular investment vehicle in the early 2000s, especially in Canada. The Canadian energy sector was hardest hit by the change, and suffered an estimated loss of about $35 billion to investors, giving rise to the term "massacre".
This change in the Canadian tax law, which was largely debated after the fact, was made to remedy a perceived loss of tax revenue.

Source: http://www.investopedia.com/terms/h/halloween_massacre.asp

Tight Monetary Policy

A course of action undertaken by the Federal Reserve to constrict spending in an economy that is seen to be growing too quickly, or to curb inflation when it is rising too fast. The Fed will "make money tight" by raising short-term interest rates (also known as the Fed funds, or discount rate), which increases the cost of borrowing and effectively reduces its attractiveness.
The Fed can sell Treasuries on the open market in order to absorb some extra capital during a tight monetary policy. This effectively takes capital out of the open markets as the Fed takes in funds from the sale with the promise of paying the amount back with interest. The Fed will often look at tightening monetary policy during times of strong economic growth.

Source: http://www.investopedia.com/terms/t/tightmonetarypolicy.asp

Correction

A reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index. Corrections are generally temporary price declines, interrupting an uptrend in the market or asset.
A healthy market will correct from time to time.

Source: http://www.investopedia.com/terms/c/correction.asp

Moratorium

A period of time in which there is a suspension of a specific activity until future events warrant a removal of the suspension or issues regarding the activity have been resolved.
In bankruptcy law, a legally binding halt of the right to collect debt.
For example, if a company is going through rough times it might have a moratorium on advertising spending. In other words, to cut costs, it won't spend any money on advertising.
Such action may be imposed by a government, or taken voluntarily by a private business, usually in times of economic crisis such as an earthquake or flood, in order to provide people with time to stabilize their finances before dealing with potential problems such as a mortgage default and foreclosure.

Source: http://www.investopedia.com/terms/m/moratorium.asp

Alligator Spread

An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market movements. An alligator spread is usually used in the options market to describe a collection of put and call options that may not be profitable.
Pricing models and a more efficient market can help reduce the traditional spread on a security, but it is commissions that create the alligator spread, not market inefficiencies. The commissions are dependent on a transaction's brokers. Investors should check the commission schedules carefully to avoid having their profits devoured by the alligator spread.

Source: http://www.investopedia.com/terms/a/alligatorspread.asp

Overtrading

1. Excessive buying and selling of stocks by a broker on an investor's behalf in order to increase the commission the broker collects.

This situation has been known to arise when brokers are pressured to place a newly issued security underwritten by a firm's investment banking arm.

Also known as "churning".

2. A situation in which a company is growing its sales faster than it can finance them. This usually leads to enormous accounts payable or accounts receivable and a lack of working capital to finance operations.

Investopedia explains Overtrading
1. One way to protect yourself from overtrading (churning) is through a wrap account - a type of account that is manged for a flat rate rather than charging commission on every transaction.

2. Many businesses become insolvent because they try to accommodate everyone who wishes to purchase their products. This ultimately leads to not being able to pay for the financing costs used to produce the goods.

Source: http://www.investopedia.com/terms/o/overtrading.asp

Bucket Shop

A fraudulent brokerage firm that uses aggressive telephone sales tactics to sell securities that the brokerage owns and wants to get rid of. The securities they sell are typically poor investment opportunities, and almost always penny stocks.
A brokerage that makes trades on a client's behalf and promises a certain price. The brokerage, however, waits until a different price arises and then makes the trade, keeping the difference as profit.
Bucket shops are sometimes called the boiler room. The U.S. has laws restricting bucket shop practices by limiting the ability of brokerage houses to create and trade certain types of over-the-counter securities.
The second definition for a bucket shop comes from more than 50 years ago, when bucket shops would do trades all day long, throwing the tickets into a bucket. At the end of the day they would decide which accounts to award the winning and losing trades to.

Source: http://www.investopedia.com/terms/b/bucketshop.asp

Herd Instinct

A mentality characterized by a lack of individuality, causing people to think and act like the general population.
This term is used in the investing world to refer to the forces that cause unsubstantiated rallies or sell-offs.

Source: http://www.investopedia.com/terms/h/herdinstinct.asp

Mechanical Investing

Buying and selling stocks according to a screen based on predetermined criteria, usually with the help of technical indicators such as relative strength or momentum. This method allows traders to enter transactions without emotion and backtest their strategies by using historical data from any time period.

Investopedia explains Mechanical Investing

For example, one of the most common mechanical investing systems is called the Dogs of the Dow. This strategy involves buying the 10 stocks on the Dow Jones Industrial Average with the highest dividend yield at the beginning of each year. The portfolio is then adjusted each year to only include the 10 highest yielding stocks. Proponents of mechanical investing say that using this method of investing removes all emotion by allowing a computer to do the work of deciding whether investing in a certain asset is warranted.

Source: http://www.investopedia.com/terms/m/mechanicalinvesting.asp

October Effect

The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological expectation rather than an actual phenomenon. Most statistics go against the theory.

Investopedia explains October Effect

Some investors may be nervous during October because the dates of some large historical market crashes occurred during this month. Black Monday, Tuesday and Thursday all occurred in October 1929, after which came the Great Depression. In addition, the great crash of 1987 occurred on October 19, and saw the Dow plummet 22.6% in a single day.

Sourche: http://www.investopedia.com/terms/o/octobereffect.asp

Black Monday

October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning of a global stock market decline, making Black Monday one of the most notorious days in recent financial history. By the end of the month, most of the major exchanges had dropped more than 20%.

Investopedia explains Black Monday

Interestingly enough, the cause of the massive drop cannot be attributed to any single news event because no major news event was released on the weekend preceding the crash. While there are many theories that attempt to explain why the crash happened, most agree that mass panic caused the crash to escalate.

Since Black Monday, a number of protective mechanisms have been built into the market to prevent panic selling, such as trading curbs and circuit breakers.

Source: http://www.investopedia.com/terms/b/blackmonday.asp

Rio Hedge

When a trader who is facing financial or legal troubles hedges his or her position in an investment with a ticket to a tropical location (such as Rio de Janeiro). The idea behind the Rio hedge is that if the investment goes bad (either legally or through financial loss) the investor will use the ticket to escape.

Investopedia explains Rio Hedge

The Rio hedge is a joke in the investment community regarding the risks involved in trading. A traditional hedge will protect against potential financial risks associated with an investment. The Rio hedge pokes fun at protecting against risks, such as getting caught by the authorities, lenders, or owners of the funds under management.

Source: http://www.investopedia.com/terms/r/rio-hedge.asp

Dollar Drain

When a country imports more goods and services from another country than it exports back to the same country. The net effect of spending more money importing than is received from exporting causes a net reduction in the importing country's reserves of the exporting country's currency.

For example, if Canada has exports $500 million worth of goods and services to the U.S. and has also imported $650 million worth of goods and services from the U.S., the net effect will be a reduction in Canada's U.S. dollar reserves.

A dollar drain position should not be maintained indefinitely. As a result of the laws of supply and demand, importing more than is exported may cause a devaluation of the importing country's currency. However, this effect will be mitigated if foreign investors pour their money into the importing country's stocks and bonds, as these actions will increase the demand for the importing country's currency, causing it to appreciate in value.

Source: http://www.investopedia.com/terms/d/dollardrain.asp

Calendar Effect

A collection of assorted theories that assert that certain days, months or times of year are subject to above-average price changes in market indexes and can therefore represent good or bad times to invest. Some theories that fall under the calendar effect include the Monday effect, the October effect, the Halloween effect and the January effect.

Most of the evidence for these effects is anecdotal, although there is a slight statistical case to be made for some of them, which is more than enough to encourage some investors to place their faith in them.

Proponents of the October effect, one of the most popular theories, argue that October is when some of the greatest crashes in stock market history, including 1929's Black Tuesday and Thursday and the 1987 stock market crash, occurred. While statistical evidence doesn't support the phenomenon that stocks trade lower in October, the psychological expectations of the October effect still exist.

Source: http://www.investopedia.com/terms/c/calendareffect.asp

W-Shaped Recovery

An economic cycle of recession and recovery that resembles a "W" in charting. A W-shaped recovery represents the shape of the chart of certain economic measures such as employment, GDP, industrial output, etc. A W-shaped recovery involves a sharp decline in these metrics followed by a sharp rise back to the previous peak, followed again by a sharp decline and ending with another sharp rise. The middle section of the W can represent a significant bear market rally or a recovery that was stifled by an additional economic crisis.

A W-shaped recovery generally characterizes a period of extreme volatility compared to other types of recoveries. There are countless other shapes a recession and recovery chart could take, including L-shaped, V-shaped, U-shaped and J-shaped. Each shape represents the general shape of the chart of economic metrics that gauge economic health.

Source: http://investopedia.com/terms/w/w-shaped-recovery.asp

Business Cycle Indicators - BCI

Composite of leading, lagging and coincident indexes created by the Conference Board and used to forecast changes in the direction of the overall economy of a country. They can be used to confirm or predict the peaks and troughs of the business cycle and are published for the U.S., Mexico, France, the U.K., South Korea, Japan, Germany, Australia and Spain.

Interpretation of BCI involves much more than simply reading graphs - an economy is too complex to be summarized with just a few statistics. Although past business cycles have shown patterns that are likely to be repeated to some degree, business cycles can start and end quite quickly for reasons that an indicator may not account for. Thus, investors, traders and corporations must realize that it is unreasonable to believe that any single indicator, or even set of indicators, always gives true signals and never fails to foresee a turning point in an economy.

Source: http://investopedia.com/terms/b/bci.asp

Lender Of Last Resort

An institution, usually a country's central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse. In the U.S. the Federal Reserve acts as the lender of last resort to institutions that do not have any other means of borrowing and whose failure to obtain credit would dramatically affect the economy.

The lender of last resort functions both to protect individuals who have deposited funds, and to prevent panic withdrawing from banks who have temporary limited liquidity. Commercial banks usually try not to borrow from the lender of last resort because such action indicates that the bank is experiencing financial crisis.

Critics of the lender-of-last-resort methodology suspect that the safety it provides inadvertently tempts qualifying institutions to acquire more risk than necessary - since they are more likely to perceive the potential consequences of risky actions to be less severe.

Source: http://www.investopedia.com/terms/l/lenderoflastresort.asp

Double Dip Recession

When gross domestic product (GDP) growth slides back to negative after a quarter or two of positive growth. A double-dip recession refers to a recession followed by a short-lived recovery, followed by another recession.

The causes for a double-dip recession vary but often include a slowdown in the demand for goods and services because of layoffs and spending cutbacks from the previous downturn.

A double-dip (or even triple-dip) is a worst-case scenario. Fear that the economy will move back into a deeper and longer recession makes recovery even more difficult.

Source: http://www.investopedia.com/terms/d/doublediprecession.asp

Tankan Survey

An economic survey of Japanese business issued by the central Bank of Japan, which it then uses to formulate monetary policy. The report is released four times a year in April, July, October and mid-December.

The survey covers thousands of Japanese companies with a specified minimum amount of capital, although firms deemed sufficiently influential may also be included. The companies are asked about current trends and conditions in the business place and their respective industries as well as their expected business activities for the next quarter and year.

Source: http://www.investopedia.com/terms/t/tankan.asp

G-20

Group Of Twenty - G-20.

A group of finance ministers and central bank governors from 19 of the world's largest economies, and the European Union. The G-20 was formed in 1999 as a forum for member nations to discuss key issues related to the global economy. The mandate of the G-20 is to promote growth and economic development across the globe.

The Group of Twenty consists of the members of the G-7, 12 other nations (including China, India, Brazil and Saudi Arabia), and rotating council presidency from the European Union. The commitee's inaugural meeting took place in Berlin in December of 1999.

Source: http://www.investopedia.com/terms/g/g-20.asp

Central Bank

The entity responsible for overseeing the monetary system for a nation (or group of nations). Central banks have a wide range of responsibilities, from overseeing monetary policy to implementing specific goals such as currency stability, low inflation and full employment. Central banks also generally issue currency, function as the bank of the government, regulate the credit system, oversee commercial banks, manage exchange reserves and act as a lender of last resort.

he central banking system in the U.S. is known as the Federal Reserve System (commonly known as "the Fed"), which is composed of 12 regional Federal Reserve Banks located in major cities throughout the country. The main tasks of the Federal Reserve are to supervise and regulate banks, implement monetary policy by buying and selling U.S. Treasury bonds and steer interest rates. Ben Bernanke currently serves as the chairman of the Board of Governors of the Federal Reserve.

Source: http://www.investopedia.com/terms/c/centralbank.asp

Blue Collar Trader

A trader who has another source of income, and does not trade as a means, but rather as a savings plan, or bonus, etc. This person typically does not trade in large volumes, leaning more towards trying to earn smaller returns. Such a trader is not significantly experienced or knowledgeable in the field, and will therefore tend to stick to less risky investments.

here are many websites, and other information forums to aid blue collar investors in trading. With the right information, blue collar trading can give the trader an extra income source. Blue collar investors work with brokers to gain advice on which investment decisions to make, and will pay a fee for their services, however, due to a highly competitive market, the commissions and fees for such brokers has decreased significantly.

Source: http://www.investopedia.com/terms/b/blue-collar-trader.asp

Position Trader

A type of stock trader who holds a position for the long term (from months to years). Long-term traders are not concerned with short-term fluctuations because they believe that their long-term investment horizons will smooth these out.

Many position traders will take a look at weekly or monthly charts to get a sense of where the asset is in a given trend. Position trading is the polar opposite of day trading because the goal is to profit from the move in the primary trend rather than the short-term fluctuations that occur day to day.

Source: http://www.investopedia.com/terms/p/positiontrader.asp

Market Maker

A broker-dealer firm that accepts the risk of holding a certain number of shares of a particular security in order to facilitate trading in that security. Each market maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the market maker immediately sells from its own inventory or seeks an offsetting order. This process takes place in mere seconds.

The Nasdaq is the prime example of an operation of market makers. There are more than 500 member firms that act as Nasdaq market makers, keeping the financial markets running efficiently because they are willing to quote both bid and offer prices for an asset.

source: http://www.investopedia.com/terms/m/marketmaker.asp

Back-End Load

A fee (sales charge or load) that investors pay when selling mutual fund shares within a specified number of years, usually five to 10 years. The fee amounts to a percentage of the value of the share being sold. The fee percentage is highest in the first year and decreases yearly until the specified holding period ends, at which time it drops to zero.

Also known as a "contingent deferred sales charge or load."

Source:http://www.investopedia.com/terms/b/back-end-load.asp?partner=TOD9&viewed=1

Day Trader

A stock trader who holds positions for a very short time (from minutes to hours) and makes numerous trades each day. Most trades are entered and closed out within the same day.

Source: http://www.investopedia.com/terms/d/daytrader.asp

Economic Growth Rate

A measure of economic growth from one period to another in percentage terms. This measure does not adjust for inlation, it is expressed in nominal terms. It is measure of the rate of change that a nation's gross domestic product goes through from one year to another. Gross national product can also be used if a nation's economy is heavily dependent on foreign earnings. The economic growth rate provides insight into the general direction and magnitude of growth for the overall economy. In the United States, for example, the long-term economic growth rate is around 2-5%, this lower rate is seen in most highly industrialized countries. Fast-growing economies, on the other hand, see rates as high as 10% although this rate of growth is not likely to be sustainable over the long term.

Source: http://www.investopedia.com/terms/e/economicgrowth.asp

Gross National Product - GNP

An economic statistic thet includes GDP, plus any income earned by residents from overseas investments, minus income earned within the domestic economy by overseas residents.

GNP is a measure of a country's economic performance, or what its citizens produced (i.e. goods and services) and whether they produced these items within its borders.

Source: http://www.investopedia.com/terms/g/gnp.asp

B-Shares

Shares in companies based in mainland China that trade on either the Shanghai or Shenzhen stock exchanges. B-Shares are eligible for foreign investment provided the investment account is in the proper currency (Shanghai B-shares trade in U.S. dollars, while Shenzhen B-shares trade in Hong Kong dollars).

B-shares trade alongside A-shares in the Chinese companies on the mainland exchanges. Changes in government regulation have allowed Chinese citizens to invest in both A-shares and B-shares after previously limiting invetment to only the A-shares. B-shares are typically what a mutual fund or exchange-traded fund that invests in China will hold, along with H-shares from the Hong Kong Exchange and N-shares, which trade on the New York Stock Exchange.

Source: http://www.investopedia.com/terms/b/b-shares.asp

H-Shares

A share of a company incorporated in the Chinese mainland that is listed on the Hong Kong Stock Exchange or other foreign exchange. H-shares are still regulated by CHinase law, but they are denominated in Hong Kong dollars and trade the same as other equities on the Hong Kong exchange.

H-shares on the exchange are automatically included in the Hang Seng China Enterprise Index, provided that they maintain the Hong Kong exchange regulatory requirements. H-shares are available for more than 90 Chinese companies, giving investors at least some access to most of the major economic sectors such as financials, industrial and utilities. In 2007, the Chinese government decided to allow mainland investors to invest in the Hong Kong exchange, which greatly increased the demand for H-shares, as mainland investors were previously forbidden from investing in the exchange. China still offers A-shares in many of the same companies, but only mainland residents can invest in them.

Source: http://www.investopedia.com/terms/h/h-shares.asp

Capacity

The maximum level of ouput of goods and/or services that a given system can potentially produce over a set period of time. In most cases, it is unlikely that any system will operate at full capacity for prolonged periods, because natural ineffeciencies and other factors decrease potential output.

Source: http://www.investopedia.com/terms/c/capacity.asp

Over-The-Counter - OTC

The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer networks as opposed to on a centralized exchange. It also refers to debt securities and other financial instruments such as derivatives, which are traded through a dealer network.

In general, the reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements. Also known as "unlisted stock", these securities are traded by broker-dealers who negotiate directly with one another over computer networks and by phone.

Instruments such as bonds do not trade on a formal exchange and are, therefore, also considered OTC securities. Most debt instruments are traded by investment banks making markets for specific issues. If an investor wants to buy or a sell a bond, he or she must call the bank that makes the market in that bond and asks for quotes.

Source: http://www.investopedia.com/terms/o/otc.asp

Quantity Theory Of Money

An economic theory which proposes a positive relationship between changes in the money supply and the long-term price of goods. Increasing the amount of money in the economy will eventually lead to an equal percentage rise in the prices of products and services. The calculation behind the quantity theory of money is based upon Fisher Equation, calculated as:

M x V = P x T

M: the money supply.

V: velocity of money.

P: average price level.

T: volume of transactions in the economy.

According to how the formula is derived, holding the transaction volume and velocity of money constant, any increases in the money supply will yield a proportional increase in the average price level.

Source: http://www.investopedia.com/terms/q/quantity_theory_of_money.asp

Red Chip

A company based in Mainland China that is incorporated internationally and listed in the Hong Kong Stock Exchange. Red chip stocks are expected to maintain the filing and reporting requirements of the Hong Kong exchange, which makes them a main outlet for foreign investors who wish to participate in the rapid growth of the Chinese economy.

Red chips may be issued in addition to A-shares in the same companies, although only Chinese citizens can invest in A-shares.

Thirty red chip stocks (a reference to the color of China’s flag) make up the Hang Seng China-Affiliated Corporations Index, which appreciated rapidly in the 2002-2007 time frame. As a sign of the pent-up demand among mainland Chinese citizens for Chinese stocks, the A-shares they are permitted to invest in often have 30-50% premiums compared to red chips for the exact same companies.

Source: http://www.investopedia.com

Bottom

The lowest point or price reached by a financial security, commodity, index or economic cycle in a given time period, which is followed by a steady increase.

If a stock has “bottomed out” it means it has reached its low point and is now in the early stages of an upward trend. The bottom is the lowest level of support when charting a stock, commodity, index or economic cycle.

Source: http://www.investopedia.com

Consolidation

In technical analysis, the movement of an asset’s price within a well-defined pattern or barrier of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset breaks beyond the restrictive barriers. Periods of consolidation can be found in charts covering any time interval (i.e. hours, days, etc.), and these periods can last for minutes, days, months or even years. Lengthy periods of consolidation are often known as a base. The levels of resistance and support within the consolidation are created through the upper and lower bounds of the stock’s price. Once the price of the asset breaks through the identified areas of support or resistance, volatility quickly increases and so does the opportunity for short-term traders to generate a profit.

Source: http://www.investopedia.com

Chapter 11

Named after the U.S. bankruptcy code 11, Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor’s business affairs and assets. It is generally filed by corporations which require time to restructure their debts.

Chapter 11 gives the debtor a fresh start, subject to the debtor’s fulfillment of its obligations under its plan of reorganization is the most complex of all bankruptcy cases and generally the most expensive. It should be considered only after careful analysis and exploration of all other alternatives.

Source: http://www.investopedia.com

Asset Stripper

An individual or company, which purchases a corporation with the intention of dividing that corporation up into its parts and selling these parts for profit. An asset stripper will determine if the value of a company is worth more as a whole or as separate assets. Usually the asset stripper sells some assets off immediately then sells the functioning portion of the business later.

Source: http://www.investopedia.com

VIX – CBOE Volatility Index

The ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a qide range of S & P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge”.

There are three variations of volatility indexes: the VIX tracks the S & P 500, the VXN tracks the Nasdaq 100 and the VXD tracks the Dow Jones Industrial Average.

Source: http://www.investopedia.com

A-Shares

Shares in mainland China-based companies that trade on Chinese stock exchanges such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange. A-shares are generally only available for purchase by mainland citizens; foreign investment is only allowed through a tightly-regulated structure known as the Qualified Foreign Institutional Investor (QFII) system.

Most companies listed on Chinese exchanges will offer two shares classes: A-shares and B-shares. B-shares are quoted only in foreign currencies (such as the U.S. dollar) and are open to both domestic and foreign investment (provided that locals set up a foreign currency account), while A-shares are only quoted in Chinese renminbi.

The peoples’ Republic of China is working to blend the two classes of stock together, and eventually allow direct foreign investment in mainland companies. It is one of many major financial reforms that the advanced economies of the world hope will occur in the next several years; there is a tremendous amount of pent-up demand for Chinese equity, provided that the regulations become uniform and reporting requirements are in-line with global standards.

Source: http://www.investopedia.com

Cash for Clunkers

A term used to describe a program that allows car owners the ability to trade in their old, less fuel-efficient vehicle in exchange for a more fuel-efficient vehicle. Although commonly referred ro as 'cash for clunkers,' the formal name for the program in the U.S. is the Car Allowance Rebate System (CARS). The CARS program gives people who qualify a potential credit of up to $4,500 depending on the vehicle purchased. CARS was signed into law by President Obama and will be administered by the National Highway Trafic Safety Administration (NHTSA).

Source: http://www.investopedia.com/terms/c/cash-for-clunkers.asp

Exchange-Traded Fund - ETF

A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throuhout that day as they are bought and sold.

Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated every day like mutual fund does.

By owning ETF, you get the diversification of an index fund as well as the ability to sel short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order.

One of the most widely known ETFs is called the Spider (SPDR), which tracks the S&P 500 index and trades under the symbol SPY.

Source: http://www.investopedia.com/terms/e/etf.asp

Dividend

1. A distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield. Also referred to as “Dividend Per Share (DPS)”.

2. Mandatory distributions of income and realized capital gains made to mutual fund investors.

Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but he dividend attempts to make up for this. High-growth companies rarely offer dividends because all of their profits are reinvested to help sustain higher-than-average growth.

Mutual funds pay out interest and dividend income received from their portfolio holdings as dividends to fund shareholders. In addition, realized capital gains from the portfolio’s trading activities are generally paid out (capital gains distribution) as a year-end dividend.

Source: http://www.investopedia.com

In The Money

In The Money

1. For a call option, when the option’s strike price is below the market price of the underlying asset.

2. For a put option, when the strike price is above the market price of the underlying asset.

In other words, this is when your stock option is worth money and you can turn around and sell or exercise it for a profit.

Source: http://www.investopedia.com

Intrinsic Value

For call options, this is the difference between the underlying stock’s price and the strike price. For put options, it is the difference between the strike price and the underlying stock’s price. In the case of both puts and calls, if the respective difference value is negatice, the instrinsic value is given as zero.

Intrinsic calue in options is the in-the-money portion of the option’s premium. For example, If a call options strike price id $15 and the underlying stock’s market price is at $25, then the intrinsic value of the call option is $10. An option is usually never worth less than what an option holder can receive if the option is exercised.

Source: http://www.investopedia.com

P/E Ratio Mean

A valuation ratio of a company’s current share price compared to its per-share earnings.

Calculated as:

Market Value per Share

= ---------------------------

Earnings per Share (EPS)

In general, a high P/E suggests that investor are expecting higher earnings growth in the future compared to companies with a lower P/E.

However, the P/E ratio doesn’t tell us the whole story by itself. It’s usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company’s own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.

Source: http://www.investopedia.com

What is a Credit Default Swap?

A credit default swap is an agreement between two parties that works like a side bet on a football game. Swap seller promise buyers a big payment if a company’s bonds or loans default. In return for the promise they get quarterly payments. Neither needs to hold the underlying debt when entering into a swap.

Source: http://www.investopedia.com

Zero-Investment Portfolio

A group of investment which, when combined, create a zero net value. Zero-investment portfolio can be achieved by simultaneously purchasing securities and selling equivalent securities. This will achieve lower risk/gains compared to only purchasing or selling the same securities.

Investopedia explains Zero-Investment Portfolio

Zero-investment portfolios have many uses, including:

1. Reducing taxes, because they generate little or no interest income.

2. Reducing risk by protecting against unexpected shifts in the value of the held securities.

3. Protecting the overall value of the portfolio so that investment can be made at a later date.

4. Determining if the average portfolio returns are statistically different from zero.

For example, if John bought (that is, took a long position) one share of XYZ Corp., he would be fully exposed to the change in value of that stock. If, however, John sold the same stock (that is, took a short position), then any movement up or down would be canceled out. The combination of these two positions creates a zero-investment portfolio.

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The EOCD

The EOCD is a group of 30 member countries who discuss and develop economic and social policy.

The EOCD has been called a think tank, monitoring agency, rich man’s club, and unacademic university. Whatever you want to call it, the OECD has a lot of power, as the member nations account for two thirds of the worlds goods and services.

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Conflict of Interest

A situation where a professional, or a corporation has a vested interest which may make them an unreliable source. The interest coud be money, status, knowledge or reputation for example. Ehen such a situation arises, the party is usually asked to remove themselves, and it is often legaly required of them.

An example of a conflict of interest would be a board member voting on the induction of lower premiums for companies with fleet vehichles when he is the owner of a tow truck companies outside of the corporation. In relation to law, representation by a party with a vested interest in the outcome of the trial would be considered conflict of interest, and the representation would not be allowed.

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Stagflation

A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation.

Stagflation occurs when the economy isn't growing but prices are, which is not a god situation for a country to be in. This happened to a great extent during 1970s, when world oil proces rose dramatically, fueling sharp inflation in developed countries. For these countries, including the U.S., stagnation increased the inflationary effects.

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Overheated Economy

When a prolonged period of good economic growth and activity causes high levels of inflation (from increased consumer wealth) and inefficient supply allocations as producers oveproduce and create excess production capacity in an attempt to capitalize on the high levels of wealth. Unfortunately, these inefficiencies and inflation will eventually hinder the economy's growth and cause a recession.

Rising rates of inflation are typically one of the first signs that an economy is overheating. As a reslt, governments and central banks wil usually raise interest rates in an attempt to lower the amount of spending and borrowing. Between June 2004 and June 2006, the Federal Reserve Board increased the interest rate 17 times as a gradual means af slowing America's overheated economy.

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Growth Recession

An expresssion coined by economists to describe an economy that is growing at such a slow pace that more jobs are being lost than are being added. The lack of job creation makes it "feel" as if the economy is in a recession, even though the economy is still advancing.

Many economist believe that between 2002 and 2003, the United States' economy was in a growth recession. In fact, at several points over the past25 years the U.S. economy is said to have experienced a growth recession. That is, in spite of gains in real GDP, job growth was either non-existent or was being destroyed at a faster rate than new jobs were being added.

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Expansion

The phase of the business cycle when the economy moves from a trough to a peak. It is a period when business activity surges and gross domestic product expands until it reches a peak.

Also known as an "economy recovery"

An expansion is one of the basic business cycle phases. The other is contraction. The transition from expansion to contraction ir termed a "peak" and the changeover from contraction to expansion is a trough. Expansions last on average about three to four years but have been known to last anywhere from 12 months to more than 10 years. Much of the 60s was a time of expansion which lasted almost nine years.

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Contraction

A phase of the business cycle in which the economy as a whole is in decline. More specificaly, contraction occurs after the business cycle peaks, but before it becomes a through.

According to most economist, a contraction is said to occur when a country's real GDP has declined for two or more consecutive quarters.

For most people, a contraction in the economy can be source of economic hardship; as the economy plunges into a contraction, people start losing their jobs. While no economic contraction lasts forever, it is very difficult to assess just how long a downtrend will continue before it reverses because history has shown that a contraction can last for many years (such as during the Great Depression).

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Sideways

Describes the horizontal price movement that occurs when the forces of supply and demand are nearly equal. A sideways trend is often regarded as a period of consolidation before the price continues in the direction of the previous move. A sideways price trend is also commonly known as a "horizontal trend". SIdeways trend is generally a result of the price traveling between strong levels of suport and resistence. It is not uncommon to see a horizontal trend dominate the price action of a specific asset for a prolonged period before starting a move hiher or lower. Brief consolidation is often needed during large price runs, as it is nearly impossible for such large price moves to sustain themselves over the longer term.

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Constant Proportion Portfolio Insurance - CPPI

A method of portfolio insurance in which the investor sets a floor in the dollar value of his or her portfolio, then structures asset allocation around that decision. The two asset classess used in CPPI are a risky asset (usually equities or mutual funds), and a riskless asset of either cash, equivalents or Treasury bonds. The percentage alocated to each depends on the "cushion" value, defined as (current portfolio value - floor value), and a multiplier coefficient, where a higher number denoted a more aggressive strategy.

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Asset Alocation Mean?

An investment strategy that aims to balance risk and reward by appotioning a portfolio's assets according to an indiviadual's goal, risk tolerance and investment horizon.

The three main asset classes - equities, fixed-income, and cash and equivalents - have different levels of risk and return, so each will behave differently over time.

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Zero-Beta Portfolio

A portfolio constructed t have zero systematic risk or, in other words, a beta of zero. Such a portfolio would have the same expected return as the risk-free rate.

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