Key Glossary of Terms for the Venture Capital Uninitiated

glossary of terms

As someone new to seeking investment, here is a glossary of terms to help you understand.

Glossary Of Terms (In Alphabetical Order)

A B C D E F G H I J K L M N O P Q R S T U V W

A

Agent:

A securities firm acting on behalf of a client. Please see Broker.

American Depositary Receipt (ADR):

Receipt for shares of foreign-based companies that entitle the shareholder to all dividends and capital gains. ADRs allow investors to buy shares of foreign-based corporations' securities on U.S. exchanges instead of having to trade on overseas exchanges.

Auction Market:

The system of trading securities through brokers on an exchange such as the New York Stock Exchange (NYSE). Exchange participants compete for trade executions where the best price wins.

B

Bear Market:

A prolonged period of falling stock prices.

Block:

A large quantity of stock either held or traded. Generally, 10,000 shares or more is considered a block.

Blue Chip Stocks:

Stock of a large and nationally known company that has a history of financial stability and quality management. The Dow Jones consists largely of Blue Chip stocks.

Bond:

A type of loan made to companies or governments by investors. By purchasing a bond, an individual is essentially loaning a company money at a specified rate of interest that is to be paid back on a specific (maturity) date at the face value.

Broker:

An agent that handles the public's orders to buy and sell securities. See Agent.

Bull Market:

An extended period of rising stock prices.

C

Capital Appreciation:

The growth of the earnings on an investment's principal.

Common Stock:

Securities that represent an ownership interest in a corporation.

Compounding:

The computation of interest paid using the principal plus the previously earned interest.

Corporate Bond:

Debt obligations issued by corporations as an alternative to offering equity ownership by issuing stock. Like most municipal bonds and Treasuries, most corporate bonds pay semi-annual interest and promise to return their principal when they mature. Maturities range from 1 to 30 years.

D

Distribution:

The income or capital gain made by a mutual fund that is paid to the fund's investors.

Diversification:

The allocation of assets among various types of investments.

Dividend Amount:

Value of last quarterly cash dividend or the number of shares an investor receives for each share owned in a stock dividend.

Dow Jones Industrial Average (or the Dow):

Best known stock index in the U.S. It contains 30 New York Stock Exchange stocks and is considered a barometer of how shares of the largest U.S. companies are performing.

E

Earnings Per Share (EPS):

Four times the last quarter's earning divided by the number of shares outstanding.

Earnings Per Share Date:

Date of the last earnings announcement.

Ex-Dividend Date:

Date a split or dividend is reflected in the price of the security (if you buy a stock on the ex-dividend date, you are not entitled to the dividend); for splits, this is the trading day after the distribution is made.

Execution:

The process of completing an order to buy or sell securities.

F

Fill:

The price at which an order is executed.

Fixed Income Securities:

Debt securities or IOUs for borrowed money. They obligate the borrower to pay the owner interest during the term of the loan and to return the principal or face value, when the loan matures. A variety of institutions issue debt obligations including the U.S. government, state and local governments, publicly held companies, banks, and savings and loans.

G

Going Long:

Purchasing a stock, bond or other security for investment, thereby creating a "long position." The opposite of going long is called "going short".

Going Short:

Selling a stock, bond or other security the investor does not own, betting its share price will decline and creating a short position. The opposite of going short is called "going long".

H

Hedging:

A strategy used to offset investment risk typically through the use of options, short selling or futures contracts. A hedge can help lock in existing profits and reduce the risk of loss.

I

Initial Public Offering (IPO):

When a company issues shares to the public for the first time, it is called an Initial Public Offering.

Institutional Investors:

Organizations that invest, including insurance companies, depository institutions, pension funds, investment companies, and mutual funds Institutions typically have large sums of money to invest.

L

Last Split Date:

The last date on which the shares of a security were increased or decreased by splitting.

Last Trade:

The price at which the most recent trade was executed. Also known as the last sale. After market close, this is called the closing price.

Last Trade Date and Time:

The date and time the security was last traded.

Limit Order:

Order to buy or sell a security at a specific price or better.

Liquidity:

A market is liquid when it has a high level of trading activity, allowing buying and selling to take place with relative ease.

Listed Stocks:

Stocks that are traded on an exchange.

M

Margin:

The amount an investor deposits with a broker when borrowing money from the broker to buy stocks.

N

NASD (The National Association of Securities Dealers):

Self-regulating organization, like the New York Stock Exchange, that is responsible for regulating its members. Most broker-dealers are members. The NASD operates the Nasdaq Stock Market.

Nasdaq Stock Market:

A computerized Over-the-Counter market. Nasdaq is known for the heavy concentration of technology-related companies that list with it.

NYSE (New York Stock Exchange):

The oldest and largest stock exchange (founded in 1792) in the U.S. Located in New York City, it is where more than 3,000 (common and preferred) stocks are traded. Also known as the Big Board or The Exchange.

O

Odd Lot:

An order to trade less than 100 shares of stock.

Offer:

The lowest price a prospective seller is willing to accept at a particular time for a specific security.

Option:

A right to buy (call) or sell (put) a fixed amount of a given stock at a specified price within a limited period of time. The purchaser of a call hopes the stock's price will go up (if he/she bought a call) or down (if he/she bought a put).

P

Pay Date:

The date the shares from a split or dividend are sent to the shareholders.

Preferred Stock:

A class of stock with a claim on the company's earnings before payment is made to the common stock holders if the company declares a bankruptcy dividend.

Price/Earnings Ratio:

Price of a stock divided by earnings per share.

Principal:

The amount of money that is financed, borrowed, or invested.

Private Placement:

A type of offering exempt from SEC registration that allows the issuing company to offer company shares directly to institutional and accredited investors.

Put:

An option giving the holder the right to sell a certain number of shares of a specific stock at a specific price on a fixed date.

Q

Quotation:

The highest bid and lowest ask price currently available for a security.

R

Round Lot:

An order to trade 100 (or a multiple of 100) shares of stock.

S

SEC (The Securities and Exchange Commission):

The federal agency created to administer various acts that constitute the U.S. federal securities laws.

Specialist:

A member of a stock exchange responsible for maintaining an orderly market in an exchange-listed stock. They may match buy and sell orders or buy and sell for their own accounts, if necessary to assure an orderly market.

Split:

When a company increases the number of shares it has outstanding. In a two-for-one split, each share is split into two. The investor's percentage of equity in the company remains the same. If you had 100 shares valued at $50 each, after the split you would have 200 shares valued at $25 each. Companies often split their stock when the price gets too high. There are also reverse splits, when companies decrease the number of shares outstanding.

Spread:

The difference between the bid and ask price for a stock.

Symbol:

The symbol used to designate a security for trading.

T

Trader:

An individual who buys and sells for their own account for short-term profits. Also, an employee of a broker-dealer or financial institution who specializes in handling purchases and sales of securities for the firm and/or its clients.

Trading on Margin:

A margin account allows you to use the marginable securities (usually securities that trade over $5 per share) in your account as collateral for a loan. Also called "Borrowing on Margin".

U

Unit Investment Trust (UIT):

A portfolio of securities that are purchased and held in trust. Units in the trust are then sold to investors who receive a share of interest payments and a share of the principal, as the securities in the portfolio mature or are called.

V

Volume:

The daily number of shares traded in a security.

W

Warrants:

A type of security usually issued together with a bond or preferred stock that allows the holder to buy a proportionate amount of common stock at a fixed price (usually above the market price at the time of issuance) for a period of years or to perpetuity. Warrants are transferable and trade on the major exchanges. They are also known as Subscription Warrants.

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