403 (b)

An alternative retirement plan to a 401(k) plan offered by non-profit organizations such as universities and charitable organizations, rather than corporations.

Absolute Breadth Index

A market indicator used to determine volatility levels in the market without factoring in price direction. It is calculated by taking the absolute value of the difference between the number of advancing issues and the number of declining issues. Typically, large numbers suggest volatility is increasing, which is likely to cause significant changes in stock prices in the coming weeks.

Advance/Decline Index (AD Line)

A technical analysis tool that represents the total difference between the number of advancing and declining security prices. This index is considered one of the best indicators of market movements as a whole. Stock indexes such as the Dow Jones Industrial Average only tell us the strength of 30 stocks, whereas the advance/decline index can provide much more insight into the movements of the market.

Aggressive Growth Fund

An Aggressive Growth Fund is a form of Mutual Fund whose main investment objective is to achieve capital gains. These funds are perceived to generate high returns, and are catered to investors who have a high tolerance for risk.


Definition: The simultaneous purchase of a security on one stock market and the sale of the same security on another stock market at prices which yield a profit. In Depth Description: In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being … Continue reading Arbitrage »

Arms Index

A technical analysis indicator that compares advancing and declining stock issues and trading volume as an indicator of overall market sentiment. The Arms Index, or TRIN (Traders Index), is used as a predictor of future price movements in the market primarily on an intraday basis.

Ascending Flag

An ascending flag is a continuation pattern. The ascending flag is formed by two straight upward parallel lines which are shaped like a rectangle. It is adjusted in the direction of the trend that it consolidates. Contrary to a bullish channel, this pattern is quite short term and marks the fact the seller will need a break.

Ascending Triangle

The ascending triangle is a bullish continuation pattern. This pattern is made by two converging lines. The first line is an upward slant which is the support and the other is a horizontal resistance line. To validate the ascending triangle, there has to be an oscillation between the two lines. Each line has to be touched at least twice for validation. Here is an ascending … Continue reading Ascending Triangle »


Definition: An asset is anything that has monetary value and can be sold. Assets can be anything from a pencil (though it is not worth much) to a skyscraper to things like Stocks and ETFs. There can also be intangible assets such as the value of a brand name or logo. Details: Assets generally refer to either something that you intend to sell later for … Continue reading Asset »

Asset Allocation

Definition “Asset Allocation” is how you have divided up your investments across different assets. You can have all your assets in one place, or you can use diversification to spread them around to reduce risk. Details Whenever you pick stocks, open a bank account, get paid, buy something, or do anything with any resources, you are doing some form of “Asset Allocation”. Early on, the … Continue reading Asset Allocation »

Asset Turnover Ratio

Definition: The amount of sales generated for every dollar’s worth of assets. It is calculated by dividing sales in dollars by assets in dollars. Formula: Asset Turnover = Revenue / Assets Also known as the Asset to Turnover Ratio. More Detail: Asset turnover measures a firm’s efficiency at using its assets in generating sales or revenue – the higher the number the better. It also indicates pricing strategy: … Continue reading Asset Turnover Ratio »

At the Money

When an option’s strike price is identical to the price of the security. Both call and put options will be simultaneously “at the money.” For example, if the ABC stock is trading at 75, then the ABC 75 call option is at the money and so is the ABC 75 put option. An at-the-money option has no intrinsic value, but may have time value (value if the stock goes up during the period of the option). Options trading activity tends to be most active when options are at the money.

Balance Sheet

What is a Balance Sheet? The Balance Sheet (or Statement of Financial Position) is one of the four financial statements required by the SEC based on the U.S. GAAP (Generally Accepted Accounting Principles). According to the SEC, the Statement of Financial Position presents “detailed information about a company’s assets, liabilities and shareholders’ equity.” In other words, this statement is a financial snapshot of the firm … Continue reading Balance Sheet »

Balanced Fund

Balanced Fund is a type of Mutual Fund whose main objective is to diversify risk by holding a defined percentage of different security types including stocks, bonds, and money market instruments

Banks, Credit Unions, and Savings & Loan Institutions

Commercial bank branch. Photo by Mike Mozart

When talking about Banking, people generally group Banks, Credit Unions, and Savings & Loan companies all in one group. They do provide similar services, but they each have specific differences that might make them a better or worse fit for your financial needs. What They Have In Common All three of these institutions can do all the things you would normally associate with a “bank” … Continue reading Banks, Credit Unions, and Savings & Loan Institutions »

Bear Market

The tendency of the stock market to trend lower over time. It can be used to describe either the market as a whole or specific sectors and securities.

Bear Spread

A bear spread is a strategy where you simultaneously sell a put at Strike Price 1, and buy a put at Strike Price 2. Recall that users will pocket the premium should the option not be exercised. By selling a put with a lower strike price, users can reduce their total transaction costs and create a strategy that can generate a fixed income like in … Continue reading Bear Spread »


A measurement of the relationship between the price of a stock and the movement of the whole market. An asset has a beta of zero if it moves are not related to the benchmark’s moves. A positive beta means that the asset generally follows the benchmark, in the sense that the asset tends to move up when the benchmark moves up, and the asset tends to move down when the benchmark moves down. A negative beta means that the asset typically moves in the opposite direction as the benchmark: the asset tends to move up when the benchmark moves down, and the asset tends to move down when the benchmark moves up.


Introduction The Black-Scholes formula is the most popular ways to calculate the true price of an option. It is easy to calculate the intrinsic value, but the extrinsic value can be very tricky to calculate. Black Scholes is used for calculating two types of options. Options on stocks Stock Options. Fisher Black, Robert Merton and Myron Scholes originally created the Black Sholes formula in 1973. … Continue reading Black-Scholes »

Bollinger Bands

Volatility is founded on the standard deviation, which modifies as volatility expands and declines. The bands spontaneously widen when volatility expands and narrow when volatility declines.

Box Spreads

A box spread is an option strategy that is created by combining the components of the bull spread and the bear spread. By creating a box spread, you are creating a neutral riskless position that generates a return like a bond. A box spread can be used to borrow or lend funds. What are its components? A box spread has four components: Long call at … Continue reading Box Spreads »

Bull and Bear ETFs

Bear ETFs short stocks to achieve their goals. Bear ETFs show gains when the underlying stocks loose value. Bull ETFs use long positions and show gains when the underlying stocks show gains.

Bull Market

The tendency of the stock market to trend higher over time. It can be used to describe either the market as a whole or specific sectors and securities. The opposite of a Bull Market is a Bear Market when the market is moving lower over time.

Bull Spreads

A bull spread is a strategy where you simultaneously buy a long call at Strike Price 1, and sell a call for Strike Price 2. Recall that users will pocket the premium should the option not be exercised. By selling a call with a higher strike price, users can reduce their total transaction costs and create a strategy that can generate a fixed income like … Continue reading Bull Spreads »

Butterfly Spreads

A butterfly is a volatility bet that the trader can implement to protect against large fluctuations, or to gain on volatility. You will notice that a butterfly is almost like a straddle, with a difference in the edges. The traders can add additional contracts to his/her strategy to reduce the risk of large losses or gains for more protection.  A butterfly can be executed in … Continue reading Butterfly Spreads »

Call Option

A Call Option gives the holder the right, but not the need to purchase a fixed quantity of a particular stock at a specific price inside a particular time. Call Options are bought by investors who anticipate a price increase.


A point on a candle stick chart representing a specific time period (a day, an hour, a minute, etc) in which the underlying stock price has moved. Candlesticks will have a body and usually two wicks – one on each end. For a white (could also be green) candlestick, the bottom of the body represents the opening price and the top of the body represents the closing price. For red candlesticks, it is just the other way around. The top and bottom tips of each wick are the day’s highest and lowest price respectively.


A cap is an options protection strategy where you simultaneously have a short position on a stock and a long call for the same underlying asset. Adding a long call to your open position means that you are obligated to buy your stock at the strike price. However, you already have a short position on the asset, which means this call option will help you … Continue reading Cap »

Capital Funding

Capital funding is the provision of monetary resources or capital for productive uses. Capital provided by investors or other parties is used by various entities such as governments, companies, organizations, and individuals in order to fund their functions and operations. In most cases, capital provided is compensated by some form of return to the provider. Two important types of capital are equity and debt. Equity capital represents an ownership stake, while debt capital is a form of lending.

Capital Gain or Loss

Profit or loss resulting from the sale of certain assets classified under the federal income tax legislation as capital assets. This includes stocks and other investments such as investment property.

Capital Gains Distribution

By law, every year, mutual funds must distribute that year’s net investment income (the total of dividends and interest received, less fund expenses) and net realized gain (gains less losses on securities sales) to its shareholders. These distributions are taxable income reported to the IRS on Form 1099. Investors must report the income on their tax returns. This poses a problem for some mutual fund investors who make initial purchases of mutual funds near the end of a calendar year. Because they receive a capital gains distribution, they immediately receive taxable income and face a mutual fund NAV that is reduced from the distribution.

Cash Conversion Cycle

Measuring the cash conversion cycle is important to liquidity, working capital, and the operating cycle of a company. Good management of the CCC can also enhance a company’s cash flows, allowing it to effectively make sound investing and financing decision. Managing the CCC entails efficient inventory, receivables, and payables functions, and should be part of a company’s overall operational strategy.

Cash Flow Per Share

Cash flow per share shows the after-tax earnings plus depreciation, on a per share basis. Many financial analysts place more emphasis on the cash flow per share value than on earnings per share values.

Cash Flow Statement

A revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from one of three activities – financing, operations or investing – although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true for both business and personal finance.

Charting Software

Charting Software is an analytical, computer-based tool used to help equity (stock) traders with trading analysis by charting the price stock price for various time periods along with various indicators. Equity charting software packages are used by many traders to determine the direction on any given stock price.

Class A shares

Class A Shares are a form of common stock that may have more or less voting rights that Class B shares. Generally Class A shares have more voting rights, but companies sometimes trick investors by using the perception of “Class A” shares to attach fewer voting rights to them than Class B shares.

Class B shares

Class B Shares are a form of common stock that may have more or less voting rights that Class A shares. Generally Class B shares have lesser voting rights, but be vary of some companies that trick investors by using the perception of Class “B” (compared to “A”) shares to attach more voting rights to them than Class A shares.

Closed-End Mutual Fund

A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.

Collar Spreads

A bullish collar is a protection strategy where you simultaneously buy a call at strike price 1 and sell a put at strike price 2. This strategy is for investors who has a bullish perception on the underlying asset. We can also create a “bearish” collar by simultaneously buying a put at strike price 1 and selling a call at strike price 2. What are … Continue reading Collar Spreads »


The fee charged by a broker or investment advisor in exchange for investment advice and/or handling the purchase or sale of a security. Commissions vary from brokerage to brokerage.


A basic material used in manufacturing or commerce that is interchangeable with other the same commodities coming from a different source. The quality of a specific commodity may differ slightly, but it is essentially uniform across producers. When they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade. Typical types of commodities are corn, gold, silver, steel, etc.

Common Stock

Common stock is a form of corporate equity ownership, a type of security. The terms “voting share” or “ordinary share” are also used in other parts of the world; common stock being primarily used in the United States. It is called “common” to distinguish it from preferred stock.

Comparative Economic Systems

Comparing Economic Systems There are many different economic systems that try to result in more equality or faster growth. The structure of a country’s economy has a lot to do with the country’s politics and the values of its population. However, the economy of every country also changes over time, and how it falls between these broad categories will often change with it. Market Economies … Continue reading Comparative Economic Systems »

Compound Interest

Had the American Indians sold their beads and trinkets they received from selling Manhattan Island, invested their $16 and received 8% compounded annual interest, not only would they have enough money to buy back all of Manhattan, they would still have several hundred million dollars left over. That is the power of compound interest over time.


A Contract is term that describes the unit of trading for a stock option, future option or future. It lists all the obligations and particulars related to the security.


Definition A “Contract” is a legally binding agreement between two parties (people, companies, or both). Having a contract means that if one party does not keep their word, the other can sue them in court to either force them to fulfill their side of the agreement, or pay back compensation. What Makes A Contract Binding? Not every agreement is a binding contract, but every contract … Continue reading Contracts »

Correlation Analysis

The use of correlation analysis extends to numerous important fields. For example, in finance, correlation analysis can be used to measure the degree of linear relationships between interest rates and stock returns, money supply and inflation, stock and bond returns, and exchange rates.

Cottage Industry

Definition Cottage Industry, or the “Putting Out System” is a production system of producing goods that relies on producing goods, or parts of goods, by craftsmen at home, or small workshops, instead of large factories. History The contractors would then create the goods at home, or their “cottage”, and deliver them upon completion. The major advantage of this system is that it allowed farm workers … Continue reading Cottage Industry »


A Coupon is the periodic interest payment made to a bondholder during the life of the bond. (Usually semi-annual)

Covered Call

A covered call is an options insurance strategy where you simultaneously have an open position on a stock and sell a call option for the same symbol. Adding a short call in your open positions means that you are obligated to sell your stocks at the strike price contingent on the option buyer. However, you already have the stock in your open position, which means … Continue reading Covered Call »

Covered Calls

An options strategy by which an investor retains a long position in an asset and writes or sells a call options on an identical in an effort to produce an increased income from the asset.

Covered Put

A covered put is an options insurance strategy where you simultaneously have a short open position on a stock and sell a put option for the same underlying option. Adding a short put in your open positions means that you are obligated to buy your stocks at the strike price, contingent on the option buyer’s actions. However, you already have the short stock in your … Continue reading Covered Put »

Current Ratio

Current Ratio is the ratio of current assets divided by current liabilities. It provides A liquidity ratio that measures a company’s ability to pay short-term obligations. Also known as “liquidity ratio”, “cash asset ratio” and “cash ratio”.

Day Trading Rules

If you perform four or more day trades in a 5 day period you may get flagged by the SEC as a “Pattern Day Trader.” This can cause you to lose your margin account status until you deposit enough cash to have $25,000 or more in your account. Many beginning traders have been bitten by this rule!

Dead Cat Bounce

A trading term called a dead cat bounce is used to when a stock is in a severe decline and has a sharp bounce off the lows. It occurs due to the huge amount of short interest in the market. Once the supply and demand has become unbalanced, any type of bear market rally will create a massive short covering which will lead to a swift price move up. This bounce will be short lived and followed up by heavy selling which will break the prior price low.


Delta is also called the hedge ratio, which is the ratio of the change in price of an option to the change in price of the underlying stock.


Definition In Economics, “Demand” is the relationship between prices and how much people want to buy a good or service. Details As the market price of a good goes up, the amount of that good that people are willing to pay generally goes down. This is because each person puts some value on the good – if the price is higher than the amount a person … Continue reading Demand »


A depression is a recessionary decline in real GDP (taking inflation into account) greater than 10% lasting at least 3 years.


Derivative is a type of security whose value is “derived” from an underlying asset. (Eg; Futures and Options). Futures and options are both derivatives – meaning a security whose value solely depends on the value of the underlying asset. A future derives its value from the commodities or currencies which it represents An option derives its value from the underlying stock Futures and options were … Continue reading Derivative »

Direct stock purchase plans

Definition:  An investment service that allows individuals to purchase a stock directly from a company or through a transfer agent. Not all companies offer DSPPs and the plans often have restrictions on when an individual can purchase shares. Example:  The greatest benefit of using direct stock purchase plans for investors is the ability to avoid commissions by not going through brokers. DSPPs often have minimum deposit requirements that … Continue reading Direct stock purchase plans »


Discount refers to the price of a bond when it is below its par value. An example is if the par value of the bond is $1,000 and the bond is selling for $980, the bond is selling at a discount of ($1,000 – $980) =$20.


Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be distributed to shareholders. There are two ways to distribute cash to shareholders: share repurchases or dividends. Many corporations retain a portion of their earnings and pay the remainder as a dividend.

Dividend Yield

A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. The formula is Annual Dividends Per Share divided by Price Per Share.