Friday, February 3rd 2012 - 06:08:51 pm

TradeStocksAmerica.com Glossary of Terms

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

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Rating service - A company that publishes ratings for securities such as preferred stock and debt issues based on the likelihood of consistent and timely payments. These rankings are arrived at by looking at a variety of balance sheet data. Some rating services are very influential, and an upgrade or downgrade can affect their borrowing costs significantly.

Regulation FD (full disclosure) - SEC regulation adopted in 2000 that eliminated the practice of selective disclosure. The rule requires that when a public company chooses to release any information, it must be done in such a way that the general public has access to it at the same time as institutional investors and analysts. If information is accidentally released to specific parties, the company must disseminate that information widely within 24 hours.

Regulation S - A regulation by the SEC to control U.S. stock sold outside the United States. It allows companies to not register their stock sold outside the U.S., and makes it easier for foreign investors to purchase the stock of U.S. companies. The regulation was created in 1990.

Regulation SHO - A regulatory addition by the Securities & Exchange Commission, expanding and updating the restrictions placed on short sale transactions. The updated regulations came into effect on Jan 3, 2005 and one of the primary goals of Regulation SHO is to address potential abuses in the practice of naked short selling, which is the act of short selling without actually confirming that shares have been located to borrow. This occurred primarily with unscrupulous market makers, specialists and some broker dealers. The regulation addresses this issue by including two main short sale requirements: the "locate" and "close-out" requirements. The locate requirement is placed on broker-dealers to reasonably assure that there are in fact shares to borrow to be short sold. The close-out requirement is also placed on broker-dealers to close out positions in securities if the position has failed to be delivered or returned for an extended period.

REIT - Real Estate Investment Trust. A corporation or trust that uses the pooled capital of many investors to purchase and manage income property (equity REIT) and/or mortgage loans (mortgage REIT). REITs are traded on major exchanges just like stocks. They are also granted special tax considerations. REITs offer several benefits over actually owning properties. First, they are highly liquid, unlike traditional real estate. Second, REITs enable sharing in non-residential properties as well, such as hotels, malls, and other commercial or industrial properties. Third, there's no minimum investment with REITs. REITs do not necessarily increase and decrease in value along with the broader market. However, they pay yields in the form of dividends no matter how the shares perform. REITs can be valued based upon fundamental measures, similar to the valuation of stocks, but different numbers tend to be important for REITs than for stocks.

Relative Strength Index - An indicator which measures the magnitude of gains over a given time period versus the magnitude of losses over that period. The equation is RSI = 100 - 100 / (1 + RS) where RS = (total gains / n) / (total losses / n) and n = number of RSI periods. The value can range from 1 to 100. Some technical analysts believe that a value of 30 or below indicates an oversold condition and that a value of 70 or above indicates an overbought condition.

Resistance - The price at which a stock has a difficult time breaking through and above. It could be considered an “invisible ceiling” for a period of time in the past history. See support as opposite.

Restricted stock - Stock which is acquired though an employee stock option plan or other private means and which may not be transferred within a certain time period, often 2 years. Restricted stock may be forfeited if any of the SEC rules related to it are broken. This stock is issued with this restriction to large buyers of the stock to prevent from large quantities of stock hitting the open market and causing large price drops.

Return on Investment (ROI)b - A fundamental analysis measure of a corporation's profitability, equal to a fiscal year's income divided by common stock and preferred stock equity plus long-term debt. ROI measures how effectively the firm uses its capital to generate profit; the higher the ROI, the better.

Reverse split - A stock split which reduces the number of outstanding shares and increases the per-share price proportionately. This is usually an attempt by a company to disguise a falling stock price, since the actual market capitalization of the stock does not change at all. A high percentage of stocks performing reverse splits continue their downward trend in stock price. For example, if a company declares a one-for-ten reverse split, then a person who previously held 20 shares valued by the market at $1 each will then have 2 shares worth $10 each. Many stock exchanges in the U.S. do not allow companies with a stock price of less than $1 to remain listed, and many such companies then have to undertake reverse splits if they want to remain listed.

ROFLOL – rolling on floor laughing out loud.

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