Friday, February 3rd 2012 - 06:13:32 pm

TradeStocksAmerica.com Glossary of Terms

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

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Panic buying - A rapid increase in buy orders for a particular investment prompted by rising share prices. Investors participating in panic buying often see that a share's price is increasing rapidly and don't want to "miss out" on making a profit, but don't necessarily understand why the share price is increasing in the first place. This can result in an overvaluation of the price, eventually prompting an increase in sales volume.

Panic selling - A rapid increase in sales orders for a particular investment, which pushes down its stock price. This can cause a spiraling effect or "vicious cycle" in which investors see a rapidly decreasing price as a sign to get out of a particular investment, which further depresses the price and prompts more investors to sell their shares. This type of selling is often prompted by a fear of loss rather than an understanding of the issue at hand. A stock exchange may employ a circuit breaker strategy in order to halt panic selling.

Pattern daytrader - is a SEC designation applying to any person who makes at least 4 round trip day trades in a 5 day period and for whom same-day trades make up at least 6% of the trader's activity during that period. Pattern day traders are subject to special rules. Buying power can currently be extended to 4 times the cash value of the account compared to the typical margin buying power of 2 times the cash value of the account. The value of the account must exceed $25,000.

Payable Date - The date a dividend will be paid to entitled shareholders. This date is set by the company on the declaration date.

P/E ratio - price/earnings ratio. P stands for Price, E represents earnings. Young companies who have losses would not have a PE ratio. This is probably considered the most common measure of how expensive a stock is. The P/E ratio is equal to a stock's market capitalization divided by its after-tax earnings over a 12-month period, usually the trailing period but occasionally the current or forward period (forward P/E). Comparing P/E ratios is most valuable for companies within the same industry.

PEG ratio - A stock's price/earnings ratio divided by its year-over-year earnings growth rate. In general, the lower the PEG, the better the value, because the investor would be paying less for each unit of earnings growth.

Penny stock - A stock which sells for less than one dollar per share (or by some brokerage firms, less than five dollars per share). Most penny stocks have only a few million dollars in net tangible assets and have a short operating history and are almost always small cap stocks

Pivot point - A technical indicator which is used to predict a change in resistance or support levels for a stock. The pivot point is calculated by taking the average of a stock's daily high, low, and closing price. If the market price increases above the pivot point, it is said to indicate a new support level, but if it decreases below the pivot point, it is said to indicate a new resistance level. Pivot points are often used in analysis of the Forex market. Formula: the sum of the high, low, and closing prices divided by 3.

Portfolio Manager - An individual who controls part or all of the assets of a mutual fund. The portfolio manager chooses and monitors appropriate investments and allocates funds accordingly.

Preferred shares – is stock which provides a specific cash or stock dividend that is paid before any dividends are paid to common stock holders. Preferred shareholders take precedence over common stock shareholders in the event of a liquidation or bankruptcy proceeding. Like common stock, preferred stocks represent partial ownership in a company, although preferred stock shareholders do not enjoy any of the voting rights of common stockholders. The main benefit to owning preferred stock is that the investor has a greater claim on the company's assets than common stockholders. In general, there are four different types of preferred stock: cumulative preferred, non-cumulative, participating, and convertible.

Price to Book - A stock's capitalization divided by its book value. This is another criteria that fundamental analysis uses to evaluate a company’s worth. This ratio compares the market's valuation of a company to the value of that company as indicated on its financial statements. The higher the ratio, the higher the premium the market is willing to pay for the company above its hard assets. A low ratio may signal a good investment opportunity, but a low ratio could indicate problems with the company.

Price to Sales ratio – is part of a fundamental analysis criteria that is a calculation of a stock's capitalization divided by its sales over the trailing 12 months. A low price to sales ratio (for example, below 1.0) is usually thought to be a better investment since the investor is paying less for each unit of sales but some believe that the price is low for a negative reason. However, sales don't reveal the whole picture, since the company might be unprofitable. Because of the limitations, price to sales ratio are usually used only for unprofitable companies, since such companies don't have a price/earnings ratio (P/E ratio).

Privatization - The repurchasing of all of a company's outstanding stock by employees, private organization or a private investor. Private means that it is not owned by shareholders of a public company on an exchange. As a result of such an initiative, the company stops being publicly traded. Usually both the buyer and selling company takes on significant debt to finance the change in ownership structure. Companies might want to go private to have more control and flexibility to make changes without shareholder approval or that the changes planned would be looked upon as unfavorable to the investing public. Also known as privatization.

Public company - A company which has issued securities through an offering, and which are now traded on the open market. Also called publicly held or publicly traded. Opposite of private company.

Publicly traded - A company which has issued securities through an offering, and which are now traded on the open market. Also called publicly held or public company. Opposite of private company.

Pump and Dump - An investment scheme, sometimes illegal, in which false recommendations are made concerning a stock's future performance in order to drive share prices up. Planned purchases further run the stock up along with the people who bought based on the recommendation. The more sophisticated pump and dump schemes are performed on a stock with a low float, which causes the stock to spike up much faster and further than with a large company. People making the false recommendations intend to sell their shares when the share price reaches a higher level.

Put Option - is an option contract that gives the holder the right to sell a certain quantity of an underlying security to the writer of the option, at a specified price (strike price) up to a specified date (expiration date); here also called put.

Put to Call Ratio - is a ratio developed by Dr. Martin Zweig as a market sentiment indicator that shows the relationship between the number of puts to calls traded on the Chicago Board of Options Exchange (CBOE). The theory is that options are traded by unsophisticated, impatient investors whose actions provide excellent signals for market tops and bottoms. The peak at which more puts are being purchased than calls, possibly as high as 1.5 to 1.7 put/call ratio, often marks an important bottom in the market or that individual stock. This is considered a contrarian indicator and has a remarkably reliable history of identifying bottoms and tops.

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