What is an 'Ex-Dividend'

Ex-dividend is a classification of trading shares when a declared dividend belongs to

the seller rather than the buyer. A stock will be given ex-dividend status if a person has
been confirmed by the company to receive the dividend payment.

A stock trades ex-dividend on or after the ex-dividend date (ex-date). At this point, the
person who owns the security on the ex-dividend date will be awarded the payment,
regardless of who currently holds the stock. After the ex-date has been declared, the
stock will usually drop in price by the amount of the expected dividend.

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What is 'Fundamental Analysis'

Fundamental analysis is a method of evaluating a security in an attempt to
measure its intrinsic value, by examining related economic, financial and other
qualitative and quantitative factors. Fundamental analysts study anything that
can affect the security's value, including macroeconomic factors such as the
overall economy and industry conditions, and microeconomic factors such as
financial conditions and company management. The end goal of fundamental
analysis is to produce a quantitative value that an investor can compare with a
security's current price, thus indicating whether the security is undervalued or
overvalued

What is a 'Factor'
A factor is a financial intermediary that purchases receivables from a company. A factor
is essentially a funding source that agrees to pay the company the value of
the invoice less a discount for commission and fees. The factor advances most of the
invoiced amount to the company immediately and the balance upon receipt of funds
from the invoiced party.

What is a 'Forward Contract'

A forward contract is a customized contract between two parties to buy or sell an asset
at a specified price on a future date. A forward contract can be used for hedging or
speculation, although its non-standardized nature makes it particularly apt for hedging.
Unlike standard futures contracts, a forward contract can be customized to any
commodity, amount and delivery date. A forward contract settlement can occur on a
cash or delivery basis. Forward contracts do not trade on a centralized exchange and
are therefore regarded as over-the-counter (OTC) instruments. While their OTC nature
makes it easier to customize terms, the lack of a centralized clearinghouse also gives
rise to a higher degree of default risk. As a result, forward contracts are not as easily
available to the retail investor as futures contracts.

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What is 'Greenmail'
Greenmail is the practice of buying a voting stake in a company with the threat of
a hostile takeover to force the target company to buy back the stake at a premium. In
the area of mergers and acquisitions, the greenmail payment is made in an attempt to
stop the takeover bid. The target company is forced to repurchase the stock at a
substantial premium to thwart the takeover.

What is a 'Growth Fund'

A growth fund is a diversified portfolio of stocks that has capital appreciation as its
primary goal, with little or no dividend payouts. The portfolio mainly consists of
companies with above-average growth that reinvest their earnings into expansion,
acquisitions and/or research and development. Most growth funds offer higher potential
capital appreciation but usually at above-average risk.

What is 'Hot Money'

Hot money is currency that moves regularly, and quickly, between financial
markets so investors ensure they are getting the highest short-term interest rates
available. Hot money continuously shifts from countries with low interest rates to
those with higher rates; these financial transfers affect the exchange rate if there
is a high sum and also potentially impact a country’s balance of payments. Hot
money can also refer to money that has been stolen but is specially marked so it
can be traced and identified.

What is a 'Hybrid Security'

A hybrid security is a single financial security that combines two or more different
financial instruments. Hybrid securities, often referred to as "hybrids," generally combine
both debt and equity characteristics. The most common type of hybrid security is
a convertible bond that has features of an ordinary bond but is heavily influenced by the
price movements of the stock into which it is convertible.

Hedge (finance)
A hedge is an investment position intended to offset potential losses or gains that may be incurred
by a companion investment. In simple language, a hedge is a risk management technique used to
reduce any substantial losses or gains suffered by an individual or an organization.
A hedge can be constructed from many types of financial instruments, including stocks, exchange-
traded funds, insurance, forward contracts, swaps, options, gambles,[1] many types of over-the-
counter and derivative products, and futures contracts.
Public futures markets were established in the 19th century[2] to allow transparent, standardized, and
efficient hedging of agricultural commodity prices; they have since expanded to include futures
contracts for hedging the values of energy, precious metals, foreign currency, and interest
rate fluctuations.
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What is 'Investment Banking'

Investment banking is a specific division of banking related to the creation of
capital for other companies, governments and other entities. Investment
banks underwrite new debt and equity securities for all types of corporations, aid
in the sale of securities, and help to facilitate mergers and
acquisitions, reorganizations and broker trades for both institutions and private
investors. Investment banks also provide guidance to issuers regarding the issue
and placement of stock.
What is an 'Indenture'
Indenture refers to a legal and binding agreement, contract or document between two or
more parties, and traditionally, these documents featured indented sides, as indicated
by their name. Historically, indenture also refers to a contract binding one person to
work for another for a set period of time, such as an indentured servant. In finance, the
word indenture appears when discussing bond agreements, certain real estate deeds
and some aspects of bankruptcies.01:06

What is 'Initial Margin'

Initial margin is the percentage of the purchase price of securities (that can be
purchased on margin) that the investor must pay for with his own cash or
marginable securities; it is also called the initial margin requirement. According
to Regulation T of the Federal Reserve Board, the initial margin is currently 50%,
but this level is only a minimum and some brokerages require you to deposit
more than 50%. For futures contracts, initial margin requirements are set by the
exchange.

What is 'Junior Debt'

Junior debt is debt that is either unsecured or has a lower priority than of another debt
claim on the same asset or property. It is a debt that is lower in repayment priority than
other debts in the event of the issuer's default. Junior debt is usually an unsecured form
of debt, meaning there is no collateral behind the debt.

What is a 'Junk Bond'

A junk bond refers to high-yield or noninvestment-grade bonds. Junk bonds are fixed-
income instruments that carry a credit rating of BB or lower by Standard & Poor's, or Ba
or below by Moody's Investors Service. Junk bonds are so called because of their
higher default risk in relation to investment-grade bonds.

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What is a 'Limit Order'

A limit order is a take-profit order placed with a bank or brokerage to buy or sell a
set amount of a financial instrument at a specified price or better; because a limit
order is not a market order, it may not be executed if the price set by
the investor cannot be met during the period of time in which the order is left
open. Limit orders also allow an investor to limit the length of time an order can
be outstanding before being canceled.
DEFINITION of 'Locked In'
A situation where an investor is unwilling or unable to exit a position because of the
regulations, taxes or penalties associated with doing so. This may be an investment
vehicle, such as a retirement plan, which can not be accessed until a specified
retirement date.

What is 'Lockbox Banking'

Lockbox banking is a service provided by banks to companies for the receipt of
payment from customers. Under the service, the payments made by customers are
directed to a special post office box instead of going to the company. The bank goes to
the box, retrieves the payments, processes them and deposits the funds directly into the
company's bank account.

What is a 'Merchant Bank'

A merchant bank is a company that deals mostly in international finance, business loans
for companies and underwriting. These banks are experts in international trade, which
makes them specialists in dealing with multinational corporations. A merchant bank may
perform some of the same services as an investment bank, but it does not provide
regular banking services to the general public.

What is a 'Mutual Fund'

A mutual fund is an investment vehicle made up of a pool of moneys collected
from many investors for the purpose of investing in securities such
as stocks, bonds, money market instruments and other assets. Mutual funds are
operated by professional money managers, who allocate the fund's investments
and attempt to produce capital gains and/or income for the fund's investors. A
mutual fund's portfolio is structured and maintained to match the investment
objectives stated in its prospectus.

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What is a 'Market Maker'

A market maker is a broker-dealer firm that assumes the risk of holding a certain
number of shares of a particular security in order to facilitate the trading of that
security. Each market maker competes for customer order flow by displaying buy
and sell quotations for a guaranteed number of shares, and once an order is
received from a buyer, the market maker immediately sells from its own inventory
or seeks an offsetting order. The Nasdaq is the prime example of an operation of
market makers, given that there are more than 500 member firms that act as
Nasdaq market makers, keeping the financial markets running efficiently.

What is a 'Merchant Bank'

A merchant bank is a company that deals mostly in international finance, business loans
for companies and underwriting. These banks are experts in international trade, which
makes them specialists in dealing with multinational corporations. A merchant bank may
perform some of the same services as an investment bank, but it does not provide
regular banking services to the general public.

What is a 'Market Order'

An investor makes a market order through a broker or brokerage service to buy or sell
an investment immediately at the best available current price. A market order is the
default option and is likely to be executed because it does not contain restrictions on the
price or the time frame in which the order can be executed. A market order is also
sometimes referred to as an unrestricted order.

What is a 'Nostro Account'

Nostro account refers to an account that a bank holds in a foreign currency in another
bank. Nostros, a term derived from the Latin word for "ours," are frequently used to
facilitate foreign exchange and trade transactions. The opposite term vostro accounts,
derived from the Latin word for "yours," is how a bank refers to the accounts that other
banks have on its books in its home currency.

What is 'Net Asset Value - NAV'

Net asset value (NAV) is value per share of a mutual fund or an exchange-traded
fund (ETF) on a specific date or time. With both security types, the per-share dollar
amount of the fund is based on the total value of all the securities in its portfolio,
any liabilities the fund has and the number of fund shares outstanding.
DEFINITION of 'Noise Trader'
The term used to describe an investor who makes decisions regarding buy and
sell trades without the use of fundamental data. These investors generally have
poor timing, follow trends, and over-react to good and bad news.

BREAKING DOWN 'Noise Trader'

A hotly debated issue in behavioral finance, many investors feel that they're not
noise traders and, therefore, only make well informed investment decisions.

In reality, most people are considered to be noise traders, as very few actually
make investment decisions solely using fundamental analysis.
Furthermore, technical analysis is considered to be a part of noise trading
because the data is unrelated to the fundamentals of a company.00

01:30

What is an 'Over-The-Counter Market'

A decentralized market, without a central physical location, where market
participants trade with one another through various communication modes such
as the telephone, email and proprietary electronic trading systems. An over-the-
counter (OTC) market and an exchange market are the two basic ways of
organizing financial markets. In an OTC market, dealers act as market makers by
quoting prices at which they will buy and sell a security or currency. A trade can
be executed between two participants in an OTC market without others being
aware of the price at which the transaction was effected. In general, OTC
markets are therefore less transparent than exchanges and are also subject to
fewer regulations

What is a 'Poison Pill'

A poison pill is a tactic utilized by companies to prevent or discourage hostile takeovers.
A company targeted for a takeover uses a poison pill strategy to make shares of the
company's stock unfavorable to the acquiring firm.
DEFINITION of 'The Kelly Criterion'
A mathematical formula relating to the long-term growth of capital developed by John
Larry Kelly Jr. The formula was developed by Kelly while working at the AT&T Bell
Laboratories. The formula is currently used by gamblers and investors to determine
what percentage of their bankroll/capital should be used in each bet/trade to maximize
long-term growth.

What is a 'Preemptive Right'

A preemptive right is a privilege that may be extended to certain shareholders of a
corporation that grants them the right to purchase additional shares in the company
prior to shares being made available for purchase by the general public in the event of a
seasoned offering, which is a secondary issuing of stock shares. A preemptive right,
also referred to as preemption rights, anti-dilution provisions or subscription rights, is
written into the contract between the stock purchaser and the company, although a few
states grant preemptive rights as a matter of law unless specifically negated in a
company's articles of incorporation. A preemptive right does not function like a put
option that gives a shareholder the right to sell stock at a specified price.

What is a 'Private Placement'

A private placement is a capital raising event that involves the sale of securities to a
relatively small number of select investors. Investors involved in private placements can
include large banks, mutual funds, insurance companies and pension funds. A private
placement is different from a public issue in which securities are made available for sale
on the open market to any type of investor.

What is a 'Public Offering'

A public offering is the sale of equity shares or other financial instruments by an
organization to the public in order to raise funds for business expansion and investment.
Public offerings of corporate securities in the U.S. must be registered with and approved
by the SEC and are normally conducted by an investment underwriter

What is a 'Covenant'
A covenant is a promise in an indenture, or any other formal debt agreement, that
certain activities will or will not be carried out. Covenants in finance most often relate to
terms in a financial contracting, such as a loan document stating the limits at which the
borrower can further lend. Covenants are put in place by lenders to protect themselves
from borrowers defaulting on their obligations due to financial actions detrimental to
themselves or the business.

BREAKING DOWN 'Covenant'

Covenants are most often represented in terms of financial ratios that must be
maintained, such as a maximum debt-to-asset ratio or other such ratios. Covenants can
cover everything from minimum dividend payments to levels that must be maintained
in working capital to key employees remaining with the firm. Once a covenant is broken,
the lender typically has the right to call back the obligation from the borrower. Generally,
there are two types of covenants included in loan agreements: affirmative covenants
and negative covenants.

Affirmative Covenants
An affirmative, or positive, covenant is a clause in a loan contract that requires a
borrower to perform specific actions. Examples of affirmative covenants include
requirements to maintain adequate levels of insurance, to furnish audited financial
statements to the lender, compliance with applicable laws, and maintenance of proper
accounting books and credit rating, if applicable. A violation of affirmative covenants
ordinarily results in outright default. Certain loan contracts may contain clauses that
provide a borrower with a grace period to remedy the violation. If not corrected,
creditors are entitled to announce default and demand immediate repayment of principal
and any accrued interest.

Negative Covenants
Negative covenants are put in place to make borrowers refrain from certain actions that
could result in the deterioration of their credit standing and ability to repay existing debt.
The most common forms of negative covenants are financial ratios that a borrower must
maintain as of the date of the financial statements. For instance, most loan agreements
require a ratio of total debt to a certain measure of earnings not to exceed a maximum
amount, which ensures that a company does not burden itself with more debt than it can
afford to service. Another common negative covenant is an interest coverage ratio,
which says that earnings before interest and taxes (EBIT) must be greater in proportion
to interest payments by a certain number of times. The ratio puts a check on a borrower
to make sure that he generates enough earnings to afford paying interest.

What is 'Short Selling'

Short selling is the sale of a security that is not owned by the seller or that the seller has
borrowed. Short selling is motivated by the belief that a security's price will decline,
enabling it to be bought back at a lower price to make a profit. Short selling may be
prompted by speculation, or by the desire to hedge the downside risk of a long position
in the same security or a related one. Since the risk of loss on a short sale is
theoretically infinite, short selling should only be used by experienced traders, who are
familiar with the risks.

What is a 'Stock Dividend'

A stock dividend is a dividend payment made in the form of additional shares rather
than a cash payout, also known as a "scrip dividend." Companies may decide to
distribute this type of dividend to shareholders of record if the company's availability of
liquid cash is in short supply. These distributions are generally acknowledged in the
form of fractions paid per existing share, such as if a company issued a stock dividend
of 0.05 shares for each single share held by existing shareholders.

What is a 'Stock Split'

A stock split is a corporate action in which a company divides its existing shares into
multiple shares to boost the liquidity of the shares. Although the number of shares
outstanding increases by a specific multiple, the total dollar value of the shares remains
the same compared to pre-split amounts, because the split does not add any real value.
The most common split ratios are 2-for-1 or 3-for-1, which means that the stockholder
will have two or three shares, respectively, for every share held earlier.

A stock split is also known as a forward stock split. In the UK, a stock split is referred to
as a scrip issue, bonus issue, capitalization issue, or free issue.

DEFINITION of 'Society for Worldwide Interbank Financial Telecommunications -

SWIFT'

A member-owned cooperative that provides safe and secure financial transactions for
its members. Established in 1973, the Society for Worldwide Interbank Financial
Telecommunication (SWIFT) uses a standardized proprietary communications platform
to facilitate the transmission of information about financial transactions. This
information, including payment instructions, is securely exchanged between financial
institutions.
What is a 'Spread'
A spread is the difference between the bid and the ask price of a security or asset.

2. An options position established by purchasing one option and selling another option
of the same class but of a different series.

1. The spread for an asset is influenced by a number of factors:

a) Supply or "float" (the total number of shares outstanding that are available to trade)
b) Demand or interest in a stock c) Total trading activity of the stock

2. For a stock option, the spread would be the difference between the strike price and
the market value.

What is a 'Repurchase Agreement - Repo'

A repurchase agreement (repo) is a form of short-term borrowing for dealers
in government securities. The dealer sells the government securities to investors,
usually on an overnight basis, and buys them back the following day.

For the party selling the security and agreeing to repurchase it in the future, it is a repo;
for the party on the other end of the transaction, buying the security and agreeing to sell
in the future, it is a reverse repurchase agreement.

Repos are typically used to raise short-term capital.

What is a 'Tender Offer'

A tender offer is an offer to purchase some or all of shareholders' shares in a
corporation. The price offered is usually at a premium to the market price.

Securities and Exchange Commission laws require any corporation or individual

acquiring 5% of a company to disclose information to the SEC, the target company and
the exchange.
What is a 'Trustee'
A trustee is a person or firm that holds and administers property or assets for the
benefit of a third party. A trustee may be appointed for a wide variety of
purposes, such as in the case of bankruptcy, for a charity, for a trust fund or for
certain types of retirement plans or pensions. Trustees are trusted to make
decisions in the beneficiary's best interests and often have a fiduciary
responsibility to the trust beneficiaries.

What is a 'Vostro Account'

A vostro account is an account a correspondent bank holds on behalf of another bank.
These accounts are an essential aspect of correspondent banking in which the bank
holding the funds acts as custodian for or manages the account of a foreign counterpart.
For example, if a Spanish life insurance company approaches a U.S. bank to manage
funds on the Spanish life insurer's behalf, the account is deemed by the holding bank as
a vostro account of the insurance company.

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What is a 'Swap'
A swap is a derivative contract through which two parties exchange financial
instruments. These instruments can be almost anything, but most swaps involve
cash flows based on a notional principal amount that both parties agree to.
Usually, the principal does not change hands. Each cash flow comprises of
one leg of the swap. One cash flow is generally fixed, while the other is variable,
that is, based on a a benchmark interest rate, floating currency exchange rate, or
index price.

The most common kind of swap is an interest rate swap. Swaps do not trade on
exchanges, and retail investors do not generally engage in swaps. Rather, swaps
are over-the-counter contracts between businesses or financial institutions.

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01:56
What is 'Yield To Maturity (YTM)'
Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held
until it matures. Yield to maturity is considered a long-term bond yield, but is
expressed as an annual rate. In other words, it is the internal rate of return (IRR)
of an investment in a bond if the investor holds the bond until maturity and if all
payments are made as scheduled.

Yield to maturity is also referred to as book yield or redemption yield.

What is 'Secondary Offering'

A secondary offering is the issuance of new or closely held shares for public sale by a
company that has already made an initial public offering (IPO). There are two types of
secondary offerings. A non-dilutive secondary offering is a sale of securities, in which
one or more major stockholders in a company sell all or a large portion of their holdings.
The proceeds from this sale are paid to the stockholders that sell their
shares. Meanwhile, a dilutive secondary offering involves creating new shares and
offering them for public sale.

What is a 'Zero-Coupon Bond'

A zero-coupon bond is a debt security that doesn't pay interest (a coupon) but is traded
at a deep discount, rendering profit at maturity when the bond is redeemed for its full
face value.

Some zero-coupon bonds are issued as such, while others are bonds that have been
stripped of their coupons by a financial institution and then repackaged as zero-coupon
bonds. Because they offer the entire payment at maturity, zero-coupon bonds tend to
fluctuate in price much more than coupon bonds.

A zero-coupon bond is also known as an accrual bond.