Account executive. The title given by some brokerage firms to their stockbrokers. Other variations on the title include registered representative, financial counselor and financial consultant.

Accrued interest. Interest that is due but hasn't yet been paid. It most often comes into play when you buy bonds in the secondary market. Bonds usually pay interest every six months, but it is earned (accrued) by bondholders every month. If you buy a bond halfway between interest payment dates, you must pay the seller for the three months' interest accrued but not yet received. You get the money back three months later when you receive the interest payment for the entire six-month period.

Alpha. A mathematical measure of price volatility that attempts to isolate the price movements of a stock from those of the market. A stock with a high alpha is expected to perform well regardless of what happens to the market as a whole. (See also beta.)

American depositary receipt. Certificates traded on U.S. stock exchanges or over the counter, representing ownership of a specific number of shares of a foreign stock.

Annuity. A series of regular payments, usually from an insurance company, guaranteed to continue for a specific time, usually the annuitant's lifetime, in exchange for a single payment or a series of payments to the company. With a deferred annuity , payments begin sometime in the future. With an immediate annuity, payments begin right away. A fixed annuity pays a fixed income stream for the life of the contract. With a variable annuity, the payments may change according to the relative investment s uccess of the insurance company.

Arbitrage. An attempt to profit from momentary price differences that can develop when a security or commodity is traded on two different exchanges. To take advantage of such differences, an arbitrageur would buy in the market where the price is lo wer and simultaneously sell in the market where the price is higher.

At-the-market. When you buy or sell a security "at-the-market," the broker will execute your trade at the next available price.

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Back-end load. A fee charged by mutual funds to investors who sell their shares before owning them for a specified time.

Back office. The support operations of a brokerage firm that don't deal directly with customers. "Back office problems" usually refers to slow paperwork or other bottlenecks in the execution of customers' orders.

Bearer bond. Also called a coupon bond, it is not registered in anyone's name. Rather, whoever holds the bond (the "bearer") is entitled to collect interest payments merely by cutting off and mailing in the attached coupons at the proper time. Bear er bonds are no longer being issued.

Bearish. A bear thinks the market is going to go down. This makes bearish the opposite of bullish.

Beta. A measure of price volatility that relates the stock or mutual fund to the market as a whole. A stock or fund with a beta higher than 1 is expected to move up or down more than the market. A beta below 1 indicates a stock or fund that usually jumps up and down less than the market.

Bid/asked. Bid is the price a buyer is willing to pay; asked is the price the seller will take. The difference, known as the spread, is the broker's share of the transaction.

Blue chips. There is no set definition of a blue-chip stock, but most would agree it has at least three characteristics: It is issued by a well-known, respected company, has a good record of earnings and dividend payments, and is widely held by inv estors.

Boiler room. A blanket term used to describe the place of origin of high-pressure telephone sales techniques, usually involving cold calls to unsuspecting customers who would be better off without whatever is being offered to them.

Bond. An interest-bearing security that obligates the issuer to pay a specified amount of interest for a specified time, usually several years, and then repay the bondholder the face amount of the bond. Bonds issued by corporations are backed by co rporate assets; in case of default, the bondholders have a legal claim on those assets. Bonds issued by government agencies may or may not be collateralized. Interest from corporate bonds is taxable; interest from municipal bonds, which are issued by stat e and local governments, is free of federal income taxes and, usually, income taxes of the issuing jurisdiction. Interest from Treasury bonds, issued by the federal government, is free of state and local income taxes but subject to federal taxes.

Bond rating. A judgment about the ability of the bond issuer to fulfill its obligation to pay interest and repay the principal when due. The best-known bond-rating companies are Standard & Poor's and Moody's. Their rating systems, although slightly different, both use a letter-grade system, with triple-A the highest rating and C or D the lowest.

Book value. For investing purposes, this is the net-asset value of a company, determined by subtracting its liabilities from its assets. Dividing the result by the number of shares of common stock issued by the company yields the book value per share, which can be used as a relative gauge of the stock's value.

Brokered CD. A large-denomination certificate of deposit sold by a bank to a brokerage, which slices it up into smaller pieces and sells the pieces to its customers.

Bullish. A bull is someone who thinks the market is going to go up, which makes bullish the opposite of bearish.

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Call. See Options.

Capital gain or loss. The difference between the price at which you buy an investment and the price at which you sell it. Adding the capital gain or loss to the income received from the investment yields the total return.

Certificate of deposit. Usually called a CD, a certificate of deposit is a short- to medium-term instrument (one month to five years) that is issued by a bank or savings and loan association to pay interest at a rate higher than that paid by a pass book account. CD rates move up and down with general market interest rates. There is usually a penalty for early withdrawal.

Charting. Another name for technical analysis.

Churning. Excessive buying and selling in a customer's account undertaken to generate commissions for the broker.

Closed-end investment company. Also called a closed-end fund, it is a pooled investment fund that issues a set number of shares and then no more. When the initial offering of shares is sold out, the closed-end fund trades on the secondary market at a price determined by investor supply and demand. For contrast, see the definition of mutual fund.

Cold calling. The practice of brokers making unsolicited calls to people they don't know in an attempt to drum up business.

Commercial paper. Short-term IOUs issued by corporations without collateral. They are bought in large quantities by money-market funds.

Common stock. A share of ownership in a corporation, which entitles its owner to all the risks and rewards that go with it. In case of bankruptcy, common stockholders' claims on company assets are inferior to those of bondholders. For contrast, see preferred stock.

Contrarian. An investor who thinks and acts in opposition to the conventional wisdom. When the majority of investors are bearish, a contrarian is bullish, and vice versa.

Convertible bond. A bond that is exchangeable for a predetermined number of shares of common stock in the same company. The appeal of a convertible is that it gives you a chance to cash in if the stock price of the company soars. Some preferred sto ck is also convertible to common stock.

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Debenture. A corporate IOU that is not backed by the company's assets and is therefore somewhat riskier than a bond.

Discount broker. A cut-rate firm that executes orders but provides little if anything in the way of research or other investment aids.

Discretionary account. A brokerage account in which the customer has given the broker the authority to buy and sell securities at his or her discretion—that is, without checking with the customer first.

Dividend. A share of company earnings paid out to stockholders. Dividends are declared by the board of directors and paid quarterly. Most are paid as cash, but they are sometimes paid in the form of additional shares of stock.

Dividend reinvestment plan. Also called a DRIP, this is a program under which the company automatically reinvests a shareholder's cash dividends in additional shares of common stock, often with no brokerage charge to the shareholder.

Dollar-cost averaging. A program of investing a set amount on a regular schedule regardless of the price of the shares at the time. In the long run, dollar-cost averaging results in your buying more shares at low prices than you do at high prices.

Dow Theory. A belief that a major trend in the stock market isn't signaled by one index alone but must be confirmed by two—specifically, a new high or low must be recorded by both the Dow Jones industrial average and the Dow Jones transportation av erage before it can safely be declared that the market is headed in one direction or the other.

Due diligence. The work performed by a broker or other representative in order to investigate and understand an investment thoroughly before recommending it to a customer.

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Earnings per share. A company's profits after taxes, bond interest and preferred stock payments have been subtracted, divided by the number of shares of common stock outstanding.

Ex-dividend. The period between the declaration of a dividend by a company or a mutual fund and the actual payment of the dividend. On the ex-dividend date, the price of the stock or fund will fall by the amount of the dividend, so new investors do n't get the benefit of it. Companies and funds that have "gone ex-dividend" are marked by an X in the newspaper listings.

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Fannie Mae. The acronym for the Federal National Mortgage Association, which buys mortgages on the secondary market, repackages them and sells off pieces to investors. The effect is to infuse the mortgage markets with fresh money.

Fixed-income investment. A catch-all description for investments in bonds, certificates of deposit and other debt-based instruments that pay a fixed amount of interest.

401(k) plan. An employer-sponsored retirement plan that permits employees to divert part of their pay into the plan and avoid current taxes on that income. Money directed to the plan may be partially matched by the employer, and investment earnings within the plan accumulate tax-free until they are withdrawn. The 401(k) is named for the section of the federal tax code that authorizes it.

403(b) plan. Similar to 401(k) plans, but set up for public employees and employees of nonprofit organizations.

Freddie Mac. The acronym for the Federal Home Loan Mortgage Corporation; it operates similarly to Fannie Mae.

Front-end load. The sales commission charged at the time of purchase of a mutual fund, insurance policy or other product.

Full-service broker. A brokerage firm that maintains a research department and other services designed to supply its individual and institutional customers with investment advice.

Fundamental analysis. Study of the balance sheet, earnings history, management, product lines and other elements of a company in an attempt to discern reasonable expectations for the price of its stock. For contrast, see technical analysis.

Futures contract. An agreement to buy or sell a certain amount of a commodity (such as wheat, soybeans or gold) or a financial instrument (such as Treasury bills or deutsche marks) at a stipulated price in a specified future month, which may be as much as nine months away. As the actual price moves closer to or further away from the contract price, the price of the contract fluctuates up and down, thus creating profits and losses for its holders, who may never actually take or make delivery of the underlying commodity.

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Ginnie Mae. The acronym for the Government National Mortgage Association, which buys up mortgages in the secondary market and sells them to investors via securities known as pass-through certificates.

Good-till-canceled order. An order to buy or sell a security at a specified price, which stays in effect until it is executed by the broker because that price was reached, or until it is canceled by the customer.

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Individual retirement account. A tax-sheltered account ideal for retirement investing because it permits investment earnings to accumulate untaxed until they are withdrawn. The contribution limit is $2,000 per year, and penalties usually apply for withdrawals before age 59 1¼2. Taxpayers whose income is below certain levels can deduct all or part of their IRA contributions, making the IRA a double tax shelter for them.

Initial public offering. A corporation's first public offering of an issue of stock. Also called an IPO.

Institutional investors. Mutual funds, banks, insurance companies, pension plans and others that buy and sell stocks and bonds in large volumes. Institutional investors account for 70% or more of market volume on an average day.

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Junk bond. A high-risk, high-yield bond rated BB or lower by Standard & Poor's or Ba or lower by Moody's. Junk bonds are issued by relatively unknown or financially weak companies, or they have only limited backing from reasonably solvent companies .

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Keogh plan. A tax-sheltered retirement plan into which self-employed individuals can deposit up to 20% of earnings and deduct the contributions from current income. Investments within the Keogh grow untaxed until they are withdrawn. Withdrawals fro m the plan are restricted before age 59 1¼2.

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Leveraging. Investing with borrowed money in the hope of multiplying gains. If you buy $100,000 worth of stock and its price rises to $110,000, you've earned 10% on your investment. But if you leveraged the deal by putting up only $50,000 of your o wn money and borrowing the rest, the same $10,000 increase would represent a 20% return on your money, not counting interest on the loan. The flip side of leverage is that it also multiplies losses. If the price of the stock goes down by $5,000 on the all -cash deal, your loss would be 5% of your $100,000 investment. On the leveraged deal, your loss would be 10% of the money you put up and you'd still have to pay back the $50,000 you borrowed.

Leveraged buyout. The use of borrowed money to finance the purchase of a firm. Often, an LBO is financed by raising money through the issuance and sale of junk bonds.

Limited partnership. A business arrangement put together and managed by a general partner (which may be a company or an individual) and financed by the investments of limited partners, so called because their liability is limited to the amount of m oney they invest in the venture. Limited partnerships can invest in virtually anything, but real estate is the most common choice. They have often been characterized by high fees for the general partners, complicated tax reporting requirements and elusive payouts for the limited partners.

Limit order. An order to buy or sell a security if it reaches a specified price. A stop-loss order is a common variation.

Liquidity. The ability to quickly convert an investment portfolio to cash without suffering a noticeable loss in value. Stocks and bonds of widely traded companies are considered highly liquid. Real estate and limited partnerships are illiquid.

Load. See back-end load and front-end load.

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Margin buying. The act of financing the purchase of securities partly with money borrowed from the brokerage firm. Regulations permit buying up to 50% "on margin," meaning an investor can borrow up to half the purchase price of an investment. See l everaging.

Money-market fund. A mutual fund that invests in short-term corporate and government debt and passes the interest payments on to shareholders. A key feature of money-market funds is that their market value doesn't change, making them an ideal place to earn current market interest with a high degree of liquidity.

Mutual fund. A professionally managed portfolio of stocks and bonds or other investments divided up into shares. Minimum purchase is often $500 or less, and mutual funds stand ready to buy back their shares at any time. The market price of the fund 's shares, called the net-asset value, fluctuates daily with the market price of the securities in its portfolio.

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Nasdaq. Pronounced Naz-dak, it is the acronym for the National Association of Securities Dealers Automated Quotations System, a computerized price-reporting system used by brokers to track over the counter securities as well as some exchange-listed issues.

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Odd lot. A stock trade involving fewer than 100 shares. For contrast, see round lot.

Opportunity cost. The cost of passing up one investment in favor of another. For instance, if you pull money out of a money-market fund, where it is earning 7% interest, to invest it in a stock that has promise but yields just 4%, your opportunity cost while you're waiting is 3%.

Return to Call.
Option. The right to buy or sell a security at a given price within a given time. The right to buy the security is called a "call." Calls are bought by investors who expect the price of the stock to rise. The right to sell a stock is called a "put. " Puts are purchased by investors who expect the price of the stock to fall. Investors use puts and calls to bet on the direction of price movements without actually having to buy or sell the stock. One option represents 100 shares and sells for a fractio n of the price of the shares themselves. As the time approaches for the option to expire, its price will move up or down depending on the movement of the stock price.

Options can also be used to wring a little income out of stock you own without selling it. By writing (selling) a "covered call," you collect the premium and, assuming the stock price stays under the call price, get to keep the stock. The risk, of course, is that the stock will get called away and you will miss out on the price rise.

Over the counter. The place where stocks and bonds that aren't listed on any exchange (such as the New York or American stock exchange) are bought and sold. Despite the small-stock, small-town image conjured up by its name, in reality the over-the- counter market (OTC) is a high-speed computerized network called Nasdaq, which is run by the National Association of Securities Dealers.

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Par. The face value of a stock or bond. Also called par value.

Penny stock. Generally thought of as a recently issued stock selling for less than $5 a share and traded over the counter. Penny stocks are usually issued by small, relatively unknown companies and lightly traded, making them more prone to price ma nipulation than larger, better-established issues. They are, in short, a gamble.

Preferred stock. A class of stock that pays a specified dividend set when it is issued. Preferreds generally pay less income than bonds of the same company and don't have the price appreciation potential of common stock. They appeal mainly to corpo rations, which get a tax break on their dividend income.

Price-earnings ratio. Usually called the P/E, it is the price of a stock divided by either its latest annual earnings per share (a "trailing" P/E) or its predicted earnings (an "anticipated" P/E). Either way, the P/E is considered an important indi cator of investor sentiment about a stock because it indicates how much investors are willing to pay for a dollar of earnings.

Price-sales ratio. The PSR is the stock's price divided by its company's latest annual sales per share. It is favored by some investors as a measure of a stock's relative value. The lower the PSR, according to this school of thought, the better the value.

Program trading. A complex computerized system designed to take advantage of temporary differences between the actual value of the stocks composing a popular index and the value represented by futures contracts on those stocks. To simplify, if the stocks' prices are higher than the futures contracts reflect, computer programs issue orders to sell stocks and buy futures contracts. If the stocks are lower than the futures contracts reflect, program traders buy stocks and sell the futures. The result is virtually risk-free profits for the program traders and more volatility for the market because of the vast numbers of shares needed to make the system work.

Prospectus. The document that describes a securities offering or the operations of a mutual fund, a limited partnership or other investment. The prospectus divulges financial data about the company, background of its officers and other information needed by investors to make an informed decision.

Proxy. The formal authorization by a stockholder that permits someone else (usually company management) to vote in his or her place at shareholder meetings or on matters put to the shareholders for a vote at other times.

Real estate investment trust. A closed-end investment company that buys real estate properties or mortgages and passes virtually all the profits on to its shareholders.

Registered representative. The formal name for a stockbroker, so called because he or she must be registered with the National Association of Securities Dealers as qualified to handle securities trades.

Return on equity. An important measure of investment results that is obtained by dividing the total value of shareholders' equity—that is, the market value of common and preferred stock—into the company's net income after taxes.

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Return on investment. Often abbreviated ROI, this is a company's net profit after taxes divided by its total assets, which include common stock, preferred stock and bonds.

Round lot. A hundred shares of stock, the preferred number for buying and selling and the most economical unit when commissions are calculated.

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Sallie Mae. Acronym for the Student Loan Marketing Association, which buys student loans from colleges, universities and other lenders and packages them into units to be sold to investors. Sallie Mae thus infuses the student-loan market with new mo ney in much the same way that Ginnie Mae infuses the mortgage market with new money.

Secondary market. The general name given to stock exchanges, the over-the-counter market and other marketplaces in which stocks, bonds, mortgages and other investments are sold after they have been issued and sold initially. Original issues are sol d in the primary market; subsequent sales take place in the secondary market. For example, the primary market for a new issue of stock is the team of underwriters; the secondary market is one of the stock exchanges or the over-the-counter market. The prim ary market for a mortgage is the lender, which may then sell it to Fannie Mae or Freddie Mac in the secondary mortgage market.

Short selling. A technique used to take advantage of an anticipated decline in the price of a stock or other security by reversing the usual order of buying and selling. In a short sale, the investor (1) borrows stock from the broker and (2) immedi ately sells it. Then, if the investor guessed right and the price of the stock does indeed decline, he can replace the borrowed shares by (3) buying them at the cheaper price. The profit is the difference between the price at which he sells the shares and the price at which he buys them later on. Of course, if the price of the shares rises, the investor will suffer a loss.

Sinking fund. Financial reserves set aside to be used exclusively to redeem a bond or preferred stock issue and thus reassure investors that the company will be able to meet that obligation.

Specialist. A member of the stock exchange who serves as a market maker for a number of different stock issues. A specialist maintains an inventory of certain stocks and buys and sells shares as necessary to maintain an orderly market for those sto cks.

Spread. The difference between the bid and asked prices of a security, which may also be called the broker's markup. In options and futures trading, a spread is the practice of simultaneously buying a contract for the delivery of a commodity in one month and selling a contract for delivery of the same commodity in another month. The aim is to offset possible losses in one contract with possible gains in the other.

Stop-loss order. Instructions to a broker to sell a particular stock if its price ever dips to a specified level.

Street name. The description given to securities held in the name of a brokerage firm but belonging to the firm's customers. Holding stocks in street name facilitates trading because there is no need for the customer to pick up or deliver the certi ficates.

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Technical analysis. An approach to market analysis that attempts to forecast price movements by examining and charting the patterns formed by past movements in prices, trading volume, the ratio of advancing to declining stocks and other statistics. For contrast, see fundamental analysis.

Tender offer. An offer to shareholders to buy their shares of stock in a company. Tender offers are usually a key element of a strategy to take over, or buy out, a company and thus are usually made at a higher-than-market price to encourage shareho lders to accept them.

10-K. A detailed financial report that must be filed by a firm each year with the Securities and Exchange Commission. It is much more detailed than a typical annual report published and sent to shareholders.

Total return. A measure of investment performance that starts with price changes, then adds in the results of reinvesting all earnings, such as interest or dividends, generated by the investment during the period being measured.

Triple witching hour. A phrase made popular by program trading, it is the last hour of stock market trading on the third Friday of March, June, September and December. That's when options and futures contracts expire on market indexes used by progr am traders to hedge their positions in stocks. The simultaneous expirations often set off heavy buying and selling of options, futures and the underlying stocks themselves, thus creating the "triple" witching hour.

12b-1 fees. An extra fee charged by some mutual funds to cover the costs of promotion and marketing. In practice, 12b-1 fees are often used to compensate brokers for selling low-load and no-load funds. The effect of the fee is reflected in the perf ormance figures reported by the funds.

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Yield. In general, the return earned by an investment. In discussing bonds, yield can be any of several kinds. "Coupon yield" is the interest rate paid on the face value of the bond, which is usually $1,000. "Current yield" is the interest rate bas ed on the actual purchase price of the bond, which may be higher or lower than the face amount. "Yield to maturity" is the rate that takes into account the current yield and the difference between the purchase price and the face value, with the difference assumed to be paid in equal installments over the remaining life of the bond.

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Zero-coupon bond. A bond that pays all its interest at maturity but none prior to maturity. These "zeros" sell at a deep discount to face value and are especially suitable for long-term investment goals with a definite time horizon, such as college tuition or retirement.