Friday, February 3rd 2012 - 06:11:49 pm

TradeStocksAmerica.com Glossary of Terms

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

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Margin - is borrowing money from the brokerage firm to buy stock. You buy a stock on margin after you have used up your cash buying power.

Margin Call - is when a brokerage demands that you deposit cash or securities into your account. It could be caused when you exceed your buying power either by the stock you bought lowered in price to such an extent where the brokerage firm issues a margin call to meet minimum equity requirements. Also called a maintenance margin call, a deposit of securities or cash needs to be made to satisfy the Reg. T requirements (NASD requirements) or house call (for brokerage requirements).

Marginable stock - Stock approved for buying on margin. See buying on margin.

Market cap - The market price of an entire company, calculated by multiplying the number of shares outstanding by the price per share; also called market cap or market capitalization.

Market Maker - is a firm that stands ready to buy or sell shares in a specific company’s stock. Market makers take their customer’s orders and post their limit orders on NASDAQ’s Level 2 system by showing the number of shares and specific price their customers are willing to pay for.

Market order is an order that says you are willing to take any price that is available on the bid when your order is sent.

Material Information - Information which would be likely to affect a stock's price once it becomes known to the public. Examples include a takeover, a divestiture, significant management changes, and new product introductions. Also called material news.

McClellan Oscillator - is a market breadth indicator which is a difference between the number of advancing and declining issues on the NYSE. A healthy bull market is accompanied by a large number of stocks making upward price advances and a weakening bull market is characterized by a small number of stocks making large advances in price.

Micro-cap - Under $250 million capitalization (number of shares times price per share).

Mid-cap - $1 billion to $5 billion capitalization (number of shares times price per share).

Momentum - Momentum traders/investors seek to take advantage of upward or downward trends in stock prices. The idea is that these stocks will continue to head in the same direction because of the momentum that is already with the stock. The idea relies on the belief that there are a large number of investors in the market who will buy whatever stock is already hot. Momentum traders/investors do not usually care whether the momentum stocks will do well in the long run, but they do think that in the short run people will continue to buy them as they have in the immediate past. Momentum runs in a stock typically last anywhere from 4 to 12 months and tend to drop faster and steeper than it took to rise.

Money flow – is a calculation using prices of high, low and closing prices of securities and measuring if money flow is positive or negative, and some use this as a forecasting tool of a security’s direction in price.

Mortgage backed securities - MBS. Security backed by a pool of mortgages, such as those issued by Ginnie Mae and Freddie Mac. Also called mortgage-backed certificate.

Moving Averages (MA): A term meaning the average price of a security over a specified time period (we are using 5 and 15 often and 50, 100 and 200 days can easily be added). It is used in order to spot pricing trends by flattening out large fluctuations. This is perhaps the most commonly used variable in technical analysis. Moving average data is used to create charts that show whether a stock's price is trending up or down. This information can be used on charts that show daily, weekly, or monthly patterns. Each new day's (or week's or month's) numbers are added to the average and the oldest numbers are dropped; thus, the average "moves" over time. In general, the shorter the time frame used, the more volatile the prices will appear, so, for example, 5 day moving average lines tend to move up and down more than 50 day moving average lines. We use MA lines in the charts next to price lines.

Moving Average Convergence/Divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD was developed by Gerald Appelm, publisher of Systems and Forecasts. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. 9-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.

Mutual fund - An open-ended fund operated by an investment company which invests money from shareholders deposits. The mutual fund invests in various types of investments in accordance with a stated set of objectives of that fund. Mutual funds raise money by selling shares of the fund to the public and then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds and money market instruments. In return for the money they give to the fund when purchasing shares, shareholders receive an equity position in the fund and the investors receive a certain number of shares of a mutual fund that is valued at a specific price. This fund price moves with the underlying investments and their prices.

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