Best Choice Software

Definitions

While these may not be every definition in the financial world, they certainly cover most of the terms you will be looking for in using Best Choice Software. Click on the letter that begins the word you are looking for.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

50/50 Stock - a Best Choice term referring to a stock whose price and earnings growth rate over its history has increased an averaged over 50% a year.

Across The Board: A trend in the stock market that affects almost all stocks in a sector

Advance: An increase in the market price of stocks, bonds, commodities, or other assets.

After Hours Trading: Securities trading on organized exchanges that occur after regular trading hours of 9:30 am to 4:00 pm.. Not recommend by Best Choice. Reason: The spread between the Bid and the Ask becomes extreme. The only one available to take your trade is the Market Maker and he is out to get you! Alert Lines: There are 2 lines. One line above the center average growth rate and one line below the average growth rate line on a Best Choice long-term chart. The lines are parallel to the average growth rate line and they are normally colored yellow. The upper alert line is set at 90. When a stock price is above the upper alert line it is becoming too high in relation to its average growth rate. The line is to 'alert' the user of this condition called 'overbought'. The price is at an Extreme % high. When a stock is below the lower line, set at 10, it is becoming too low in relation to its average price. The line is to 'alert' the user of this condition called 'over sold'. The price is at an Extreme % low. American Association Of Individual Investors (AAII): A not-for-profit organization established to educate individual investors about stocks, bonds, mutual funds, and other financial instruments. American Depository Receipts (ADR): Certificates issued by a U.S. depository bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. American-style Option: An option that may be exercised on or before the expiration date. This is as opposed to a European-style option that may be exercised only on its expiration date.

Across The Board: When almost all stocks in a sector or index are affected by a trend or news in the stock market.

Actual Earning: The earning amount reported for a particular stock for a single quarter. This is different than an annualized earning, which is the accumulation of four actual quarterly earnings.

Advance: An increase in the price of a stock, option, bond, commodity, or other asset.

After Hours Trading: Securities trading on organized exchanges that occur after regular trading hours of 9:30 am to 4:00 pm. Not recommend by Best Choice because the spread between the Bid and the Ask can become extreme, and the volume becomes next to nothing.

Alert Lines: On our long term charts, you will see three yellow lines. The center line is the average growth rate for the time currently showing on the chart. We consider the two outer parallel lines our Alert Lines. They are to alert you when the price is at an extreme.

The upper alert line is set at 90, which means that 90 percent of all the stocks prices fall below that line. That also means 10 percent of the stocks prices fall above that line. When a stock price is above the upper alert line it is becoming extremely high in relation to its average growth rate. The line is to 'alert' the user of this condition called 'overbought'. The price is at an Extreme % high. Please note that just because the stock has risen above these lines, that is not an automatic sell signal. The stock could continue to go higher. Wait for a confirmation that the uptrend has reversed first.

The lower alert line is set at 10, which means that 10 percent of all the stocks prices fall below that line. That also means that 90 percent of all the stock prices are above that line. When a stock is below the lower line, it is becoming extremely low in relation to its average price. The line is to 'alert' the user of this condition called 'over sold'. The price is at an Extreme % low. Please also note that just because the stock has fallen below these lines, that is not an automatic buy signal. The stock could still keep going lower. Enron is a good example. Wait for a confirmation of a reversal of the down trend.

American Association Of Individual Investors (AAII): A not-for-profit organization established to educate individual investors about stocks, bonds, mutual funds, and other financial instruments.

American Depository Receipts (ADR): Certificates issued by a U.S. depository bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue.

American-style Option: An option that may be exercised on or before the expiration date. This is as opposed to a European-style option that may be exercised only on its expiration date.

AMEX (American Stock Exchange LLC): The third largest floor-based securities exchange in the United States. Most stocks traded are small to mid sized companies. It has a significant presence in both listed equities and derivative securities. It was founded in 1842 and acquired by NASDAQ in 1998. For more information, go to their website www.amex.com

Annualized Earning: When you look at our long term charts, the little green squares are the annualized earnings for each quarter for that company. Each annualized earning is calculated by taking the actual earning for that quarter, and adding the actual earnings for the previous three quarters. Each successive annualized earning is basically losing the previous actual quarterly earning and adding a new actual quarterly earning, which has a smoothing effect. If this seems strange, this is actually an industry standard for looking at earnings. The reason for this is because many companies make more money at certain times of the year because of different types of business cycles, and this allows a better comparison of their earnings. For example, many companies that help individuals prepare their tax returns make the majority of their income in the first few months of the year before April 15th. So if we only looked at their actual earnings, then you would see a really high earning for their first quarter, and the rest of their actual quarterly earnings may even be negative. By annualizing the earnings, we get a better picture of how well they are doing from one year to the next.

Arithmetic Chart: A chart where the scaling is in an arithmetic progression. For example, both vertical and horizontal scales progress evenly as in 1,2,3,4? Etc. The short term charts in Best Choice use an arithmetic chart. See also Log Chart.

Asset Allocation: The percentage of distribution of assets, including stocks, bonds, and cash in an investment portfolio. Analysis of risk levels of each asset is normally the deciding factors as to percentages of weighting (i.e., high-quality bonds are less risky than technology stocks).

Ask (or Ask Price): The high price of the bid - ask spread where a buyer seeks to purchase a stock, option, or other security. Typically a person buys at the ask, and sells at the bid of the spread, but sometimes it is possible to buy and sell slightly inside the spread. This also called the offer. See also the Bid.

Assign: To designate an option writer for fulfillment of his or her obligation to sell a stock (call option writer's) or buy stock (put option writer). The writer receives an assignment notice from their brokerage firm.

At the Money (ATM): A term that describes an option when its strike price is equal, or approximately equal to the current market price of the underlying stock, option, etc.. It is always the stike that is closest to the current market price. See also In the Money, Out of the Money

Average Annual Growth Rate: The rate of growth of price or earnings on an annualized basis. On a Best Choice chart, this is shown as a line on a logarithmic scale. If the growth rate is positive the line will slope upwards and if the growth is negative the line will slope downwards. The line is created such that ½ of all prices are above the line and ½ of all prices are below the line.

Average Closing Price: The sum of closing prices divided by the number of closing prices over a specified length of time.

Average Down: To buy more of a security at a lower price, thereby reducing the holder's average cost. Generally not a smart thing to do, because you were wrong initially and now you are adding more money to a losing position.

Bear Call Spread: The purchase of a high strike price call and the sale of a low strike price call in the expectation of declining prices. This is a credit spread because you are selling the higher priced, low strike call and you are buying the cheaper priced, high strike call. For example, the stock is at $46. A 40 call is $6.75 and a 45 call is $2.75. You sell a 40 call and you buy a 45 call. Thus you receive $4. If the stock closes below 40 at expiration, the spread is worthless and you keep the $4. If it closes at $44, it cost you $4 and you lose the $4 received for a breakeven. On a close above $45, you lose $5 - the $4 received for a maximum loss of $1. This is a type of vertical spread.

Bear Market: A long-term downward moving market lasting months to years. See also Bull Market.

Bear Put Spread: The purchase of a high strike price put and the sale of a low strike price put in the expectation of declining prices. This is a debit spread and it will cost you because you are selling the lower priced, low strike put and you are buying the higher priced, high strike put. For example, the stock is at $46. A 40 put is $3.50 and a 45 put is $4.50. You sell a 40 put buy a 45 put. You pay $1 for the spread. If the stock goes below $40 you make $5 - the $1 cost for a profit of $4. If the stock goes to $44, you make $1 - the $1 cost and you break even. If the stock closes above $45 the spread is worthless and you lose your $1 cost. This is a type of vertical spread.

Bear Spread: An option strategy that makes its maximum profit when the underlying stock declines below a certain point and has its maximum risk if the stock rises far enough in price. The strategy can be implemented in either puts or calls. In either case, an option with a higher strike price is bought and one with a lower strike price is sold.

Bearish: Describes the opinion or outlook that expects a decline in price, either in the general market or in an underlying stock, or both.

Best Ask: The lowest quoted selling price from all competing Market Makers, Stock Exchanges or ECNs,

Best Choice Trading Execution Platform: This is a trading window created by NT Securites for Best Choice users to enter orders generated by the short-term trading screen. A user must have an account opened with NT Securities in order to use it.

Best Price: The lowest ask if you are buying or the highest bid if you are selling.

Beta: A measure of volatility that tells how much a stock moves in relation to an index or average. A beta of 1.5, for example, means that the stock may move 50%, either up or down, more than the Dow Jones Industrials, or other indicator on which it is based.

Beta Testing: The process of testing a computer program. Computer programs, such as Best Choice, contain sophisticated logic on how something is done or calculated. This logic has to be scrutinized under normal operating conditions to insure that it is working correctly. Thus, beta testing refers to a small limited number of individuals who are willing to test, but who fully understand that the procedures may not work correctly.

Bid (or Bid Price): The low price of the bid - ask spread where a buyer seeks to sell a stock, option, or other security. Typically a person buys at the ask, and sells at the bid of the spread, but sometimes it is possible to buy and sell slightly inside the spread. See also the ask.

Block Trade: Buying or selling 10,000 shares of stock

Bollinger Bands: An envelope created by using a default of the moving average of 20 days closing prices and calculating 2 standard deviations above and below this moving average. This creates bands that widen during increased volatility and contract during decreased volatility. When broken, they are an indication that the trend is powerful and may continue in that direction. John Bollinger developed this concept.

Bond: An "IOU" or a debt instrument that pays a fixed amount of interest (5% for example) on a regular basis. The issuer, whether corporate or government, promises to repay the debt on time and in full. The repayment date could be 30 years, 10 years, 5 years, or other duration and they are issued normally in $1,000 increments. They are bought and sold on a secondary market and the price will fluctuate based upon current interest rates. Corporate bondholders are paid their interest before stockholders are paid a dividend. Bonds are rated or assessed by a credit rating firms to tell investors the quality or probability that the principal and interest payments will be in full and on time. The interest on a bond is normally paid at a fixed date on a semi-annual basis. For example, $10,000 of a 5% bond would pay $250 maybe on Jan 1 and July 1, or Feb 1 and Aug 1. If interest rates fall, say from 5% to 4%, let's consider what happens to a bond prices and yields. You have $10,000 of a 5% bond and you are receiving $500 a year. New bonds are now issued only paying 4%. Your bond is worth more, because you are receiving a higher fixed rate. The price of your bonds will rise. Considering that a new issue of $12,500 at 4% will generate the same $500, your bonds can potentially rise 25% in value. The yield of your bond will fall towards the new 4% rate. This is because a new higher priced debt instrument at a fixed interest rate gives a lower yield. When interest rates fall, some bonds are callable which means the issuer may want to replace older high interest bonds with newer low interest rate bonds. In this case, the bondholder is paid a premium over the "par" or issue rate. Conversely, if interest rates rise, bond prices will fall. Considering the same example as above and you have a fixed 5% rate. Now rates have jumped to 6%. You have to discount your bond to effectively match the newer 6% bond. Why would someone want yours at 5%, when they can get a new one at 6%. Considering that 6% of $8,333 gives the same $500 your receive annually, your bond could drop up to $1666 in value. You would still be receiving the $500 in interest, but that is small consolation for the loss in value, especially if you are taxed on the interest. As you can see, bonds are very sensitive to interest rate changes. They can be considered as a competitive market to the stock market for investor's dollars. When bond yields drop, stocks become more attractive. Remember our bank analogy. If you had money in a bank at 5% and a bank open down the street at 10%, wouldn't you move your money. This same competition concept applies for stocks and bonds. Normally, we ignore bonds for the much higher returns of the stock market. It is, however, important to understand the dynamics of the bond market, because it does affect the stock market

Breakdown: When the price of a stock moves below the bottom of its resistance and falls lower.

Break-Even Point: The stock price (or prices) at which a particular strategy neither makes nor loses money.

Breakout: When a stock breaks out of its recent past trading range. It could be either breaking a support or a resistance.

Broker: An individual or firm who acts as an intermediary between a buyer and seller usually charging a commission per executed trade.

Bull Call Spread: The purchase of a low strike price call and the sale of a high strike price call in the expectation of rising prices. This is a debit spread and it will cost you because you are you are buying the higher priced, low strike call and selling the lower priced, high strike call. For example, the stock is at $48. The 50 call is $2 and the 55 call is $1. You buy the 50 call paying $2 and sell the 55 call receiving $1. Thus it cost you $1. If it closes above 55, you receive $5 - $1 cost for a profit of $4. If it closes at 51, you receive $1 - $1 cost and you breakeven. If it closes below 50, you receive $0 and you lost your original $1. This is a type of vertical spread Bull Market: A long-term market up trend lasting months to years.

Bull Put Spread: The purchase of a low strike price put and the sale of a high strike price put in expectation of rising prices. This is a credit spread because you are selling the higher priced, high strike put and your are buying the lower priced, low strike put. For example, the stock is trading at $49. The 55 put costs $7.25 and the 50 put costs $3. You buy the 50 put and sell the 55 put. Thus, you receive $4.25. If the stock closes above 55, the spread is worthless and you keep the $4.25. If the stock closes at 50.75, it cost you $4.25 and you lose the $4.25 received for a breakeven. If the stock closes below 50, then it cost you $5 and you lose the $4.25 received plus 75 cents additional.

Bull Spread: An option strategy that makes its maximum profit when the underlying security rises above a certain point, and has its maximum risk if the security falls far enough in price. The strategy can be implemented with either puts or calls. In either case, an option with a lower striking price is bought and one with a higher striking price is sold.

Bullish: The opinion or outlook in which one expects a rise in price, either by the general market, by an individual security, or both.

Butterfly Spread: A type of spread for a non-directional market. A butterfly uses either 4 calls or 4 puts of the same expiration. You buy an Out-of-the-Money and an In-the-money option and sell 2 At-the-money options. You are buying cheap time value and selling expensive and the hope is that the stock stays at the same price.

Buy And Hold: A traditional, long-term investment strategy that focuses on the fundamentals of a company and ignores short-term market fluctuations.

Buy Stop: an order placed with your broker at a certain stock price indicating where you would like to buy the stock to start a long transaction or buy the stock to exit a short position. See the definition of stop and "long" to get a better understanding of buying a stock first, or going long

Buyer: A person who purchase a stock, future, or option contract (call or put).

Bearish - believing or having the bias that a stock price will go down.

Bullish - believing or having the bias that a stock price will go up.

Buy Stop - a marker placed with your broker at a certain stock price indicating where you would like to buy the stock to start a transaction. See the definition of "long" to get a better understanding of buying a stock first, or going long.

Calendar Spread: The sale of a near term option and the purchase of a far out option to capitalize on the time decay. This is done using either 2 calls or 2 puts and both options have the same strike price. For example in March, you sell a June Call for $3 and buy a December call for $5, for a cost of $2. The time decay on the June is faster, so if by June the June call is worthless and the December is still $4, then there is $2 profit on a $2 investment.

Call: An option contract that gives the buyer (holder) the right to buy a specific stock at a certain price (strike price) before a certain date (expiration date). The buyer's risk is his purchase price (the premium). One call is normally for 100 shares of stock and strike prices are at fixed increments. Buyers have the right to either purchase the stock by paying the strike price (exercising the option) or sell their option prior to expiration. The buyer has the option of action. Buying a contract is not purchasing the stock. It is only purchasing the right to purchase a stock. Buyers have no obligation to take delivery of the stock and can sell their option at any time. Buyers expect the price of the stock to go up so the call will be worth more in the future. If the stock goes up, there is an unlimited profit potential. Most options expire worthless and the buyer's loss is limited to the premium paid. A call seller receives money (the premium) from the buyer. A seller is obligated to deliver the stock at any time, if the buyer pays the seller the strike price (exercising the option). If the seller does not have the stock, he still must deliver the stock to the buyer. In this case, the seller must purchase the stock regardless of what the price is. Consequently, sellers have unlimited risk if the price of the stock goes up. Sellers hope the price will fall so that the call will be worth less in the future. Most calls expire worthless at expiration and the most money a seller can make is the initial premium he received.

There are three types of calls: At-The-Money (ATM), In-The- Money (ITM) and Out-of-The-Money (OTM). This refers to the relationship between the current price of the stock and the strike price.

Cancel: The removal of a buy or sell order that has not been executed. A conditional order can be cancelled before it is executed. A market order is an immediate order and can normally only be cancelled while the market is closed.

Cancel Button: On the BC trading execution platform, clicking this button instantly cancels the trade.

Candlestick: A visual representation of trading activity that gives a trader a quicker and more complete view of the day's trading activity. Candlesticks can represent other time frames, such as minutes, hours, or week, but the day is the most common. A candlestick consists of two parts. The first part is a rectangle box called a "body" which is the open and close of the stock on that day. If the stock went up, then the price closes higher than the open and the body is hollow (like a balloon rises). If the stock went down, then the close is below the open and the body will be solid (like a stone falls). Hollow candlesticks have the close at the top and solid candlesticks have the close at the bottom. The second part consists of lines extending from the top and bottom of the body called "Shadows" or "Tails." The outer ends of the "Tails" represent the High and Low of the day. The range of the day is the total height of the candlestick. In Best Choice short-term charts, we use candlesticks to display the daily prices.

Capital Gains Tax: A tax on profits made from the sale of a capital asset such as a securities investment. Long term capital gains refers to profits made on stocks held for at least 1 year and short term capital gains refers to gains made on stocks held for less than 1 year.

Chicago Board of Trade (CBOT): The CBOT was established in 1848 and is the oldest futures exchange where agricultural and financial futures trade. The first financial futures contract was traded in October of 1975. Options on futures were established in 1982. The CBOT initiated electronic trading in 1994. As of Jan 1, 2004, the Chicago Mercantile Exchange (CME) is providing clearing for all CBOT products.

Chicago Board of Options Exchange (CBOE): An exchange set up by the CBOT to trade stock options. It trades options on stocks, stock indices, interest rates, and sector indexes.

Chicago Mercantile Exchange (CME): An exchange that trades commodity, interest rates, equity indexes, and foreign exchange. The e-mini S&P 500 is based on the S&P 500 contract and is traded on the CME.

Close: The previous trading day's last reported trade.

Closing Transaction: A trade that reduces an investor's position. Closing "buy" transactions reduce short positions and closing "sell" transactions reduce long positions.

Collateral: Collateral in general is stocks or other property that a borrower is obliged to turn over to lenders if they are unable to repay a loan. In respect to option writing, the loan value of marginable securities generally used to secure a loan to purchase securities.

Combination: Any strategy involving the purchase or sale of both put and call options on the same security that is not a straddle.

Commission: Fees paid to the broker for execution of an order.

Commodity: A tangible good such as corn, gold, or hogs with a standardize unit of trade.

Commodity Channel Index: An indicator designed for use in markets that follow definite cyclical patterns.

Compound Interest: Interest earned on prior interest as well as the principal.

Conditional Order: An order whose execution depends upon a condition such as a price. For example, a stop order depends upon a price being met. It then becomes a market order

Condor: A non-directional option strategy that uses either 4 calls or 4 puts of the same expiration month. It uses 4 different strike prices and the maximum profit occurs between the center 2 strike prices. It buys the outer 2 strikes and sells the inner 2. For example, if a stock is 52 and you don't expect it to move. A condor would be selling a 50 and 55 strike and buying a 45 and 60 strike.

Confirmation: Formal memorandum from a broker to a client giving details of securities transactions. When a broker acts as a dealer, the confirmation must disclose that fact to a customer.

Consolidation: A time period when stock volatility declines. It appears as a pennant formation. It can be identified by an up trend line from the lowest low to the apex and a down trend line from the highest high to the apex. Ultimately, this formation will breakout as it approaches the apex. A Best Choice candlestick chart displays the consolidation and identifies the breakout day with 2 "hash marks" as a signal to place the trade the following day. The stock will break out the next day, unless the following day is an "inside day." In this case, you will be given a new 2 "hash mark" signal with an even smaller risk. This order replaces the previous order.

Consumer Price Index (CPI): A gauge of inflation that measures changes in the price of consumer goods. This list is based on goods and services purchased in urban areas and it is released monthly by the Labor Department.

Converge: The movement of the price of a futures contract toward the price of the underlying cash commodity. At the start, the contract price is higher because of time value. But as the contract nears expiration, and time value decreases, the futures price and the cash price converge.

Convergence: The visual coming closer together. For example, a consolidation is a convergence

Cover: To buy back, as a closing transaction, an option that was initially written. For stocks, it means buying back a short position. For options, it means the seller of an option buying back his call or put to prevent being assigned.

Covered: A written option is "covered" if the writer also has an opposing market position in an underlying stock/security on a share-for-share basis. A short call is covered if the underlying security is owned (a buy-write), and a short put is covered (for margin purposes) if the underlying stock is also short in the account.

Covered Call (Writing): A strategy in which one sells call options, while simultaneously purchasing an equivalent number of shares of the underlying security.

Covered Put (Writing): A strategy where one sells put options and is short an equivalent number of shares of the underlying security.

Credit: Money received in an account. A credit transaction is one in which the net sale proceeds are larger than the net buy proceeds (cost), thereby bringing money into the account.

Cycle: The expiration dates applicable to various classes of options. There are three cycles: 1) January, April, July, and October; 2) February, May, August, and November; and 3) March, June, September, and December.

Cyclical Pattern: A repeating chart pattern.

Cyclical Stocks: Stocks that are tied to economic cycles. For example, large manufacturing companies do well when the economy is good, but suffer during an economic downturn. Some oil companies boom and collapse in relation to the demand for oil and gas production.

Day Order: A trading order that lasts only for one day. If the order is not filled by the end of the day, it is canceled. Typically, useless otherwise specified, all orders are considered day orders.

Day Trading: Trading where you are entering and exiting a trade within one day's time, Debit: An expense, or money paid out from an account. A debit transaction is one in which the net cost is greater than the net sale proceeds.

Decision Day - A term coined by Best Choice Software descibing a day that the program is showing as having a trade ready for the next day. It is identified by 2 yellow horizontal hash marks to the right of the last candlestick. Depending on the type of trading method you have selected, it signifies placing a simultaneous Buy Stop order and a Sell Short Order. The trader is looking for a breakout. It is your decision whether or not to place this trade.

Deep-in-the-Money: An option with a lot of intrinsic value.

Deleted: A security is no longer included in the major national markets.

Delta: The amount by which an option's price will change for a one-point change in the price of the underlying security. Call options have positive deltas, while put options have negative deltas. The delta is an instantaneous measure of the option's price change, so that the delta will be altered for even fractional changes by the underlying security.

Delta Spread: A ratio spread that is established as a neutral position by utilizing the deltas of the options involved. The neutral ratio is determined by dividing the delta of the purchased option by the delta of the written (sold) option.

Discount: An option is traded at a discount when it is traded for less than its intrinsic value. A future is trading at a discount if it is trading at a price less than the cash price of its underlying index or commodity.

Discount Rate: The interest rate charged by the Federal Reserve on loans to banks.

Divergence: - A situation when 2 entities are getting further apart. An example is when Price and Earnings are not working together. Diverging lines identify it. If price growth is faster than earnings growth, this is a negative sign. The P/E ratio is increasing and either Earnings will have to increase, or Price at some point will collapse. If Earnings are growing faster than Price, this is a positive divergence. The P/E ratio is dropping and at some point investors will consider the stock undervalued.

Diversification: Dividing investment funds among a variety of securities. This means dividing your investment funds into different industry sectors. For example, if you own Ford, General Motors and Toyota stock, you own 3 different stocks but in the same sector. This is not diversification. Usually these three stocks will move in unison as the industry group moves. If you owned Ford, Microsoft and Outback Steakhouse, you would have one stock in different industry groups that do not move in unison.

Diversification reduces your risk as you don't have "all your eggs in one basket" in case you fall.

Dividend: A portion of a company's profit paid to shareholders. A stock selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.

Dollar Cost Averaging: A strategy used by investors to reduce the average cost of shares, in which the investor purchases more shares with a fixed amount of capital as the price of the shares decrease. The investor receives more shares per dollar and decreases the average price per share. This is a bad strategy because you are investing more money in a stock that is proving to be a loser. We believe you should have used a Stop to cut your losses and wait for the stock to bottom out, and then buy. Generally, if you want to add to a position, it makes better sense to add to a winning position. You want to cut your losses and let your winners run until a stop tells you that the move is over.

Double Bottom: A term used in technical analysis to refer to the drop of a stock's price, a rebound, and then a drop back to the same level as the original drop.

Double Top: A term used in technical analysis to refer to the rise of a stock's price, a drop, and then a rise back to the same level as the original rise.

Dow Jones Industrial Average (DJIA): The most widely used indicator of market activity, composed of a average of 30 large issues within the industrial sector of the economy.

Down Off Bid: The Market Maker or ECN adjusts his advertised selling price down to the current inside market ask price.

Down to Ask: The Market Maker or ECN adjusts his advertised selling price down to the current inside market ask price.

Down Trend: A series of lower highs and lower lows in a given stock on a chart. This also applies to the Futures and Indices.

Down Trend Line: A line that connects the highest high and a later high which will subsequently form a line in a downward direction.

Downside Protection: A put generally used in connection with covered call writing. It is used while long stock to prevent disaster. When used to buy-write, it is the call premium that gives you a limited cushion on the downside. The cushion is equal to the call premium.

Earnings - A quarterly report by a company reporting its profits. It is the income after the taxes and all other company expenses are paid. It can also refer to as profit, net income, or Earnings per Share, which is the total earnings divided by the number of outstanding shares. Earnings allow an investor to know how much money his company is making or losing. A P/E ratio uses Earnings calculated over a one year time period. This is known as an annualized earning and it is obtained by adding the most recent 4 quarters.

ECN: Electronic Communication Network

Equity: A shareholder's equity in a company is the assets minus liabilities. A stock is equity.

Equity Option: An option that has common stock as its underlying security.

Euro: The currency of 12 European countries in the new European Union.

Exchange: A place where securities are bought and sold.

Exchange Traded Funds (ETFs): Similar to mutual funds, these track major indexes. Unlike mutual funds, they can be bought or sold any time during the day, including being sold short or bought on margin. A reason to trade ETFs is that they simplify index and sector investing. The first ETF was the S&P 500 index on the Amex in January 1993, called SPDR or "spider". The SPDR or "spider" is an investment instrument that bundles the stocks of the S&P 500 and give you ownership in the index.

Today, they not only include spiders (symbol *SPX), but the QQQs (symbol *QQQ), Holdrs, iShares and diamonds (symbol *DIA). The "QQQ"s represents the Nasdaq 100, which consists of the 100 largest, and most actively trades non-financial stocks on the Nasdaq. Holdrs are a trust issued receipt that represents specific industry sectors or groups. The iShares is a brand of ETF put out by Barclay that follow Goldman Sach's technology indexes and trade on the Amex. The "Diamonds" are a fund that track the Dow Jones Industrial Average and also trade on the Amex

Ex-Dividend: The process whereby a stock's price is reduced when a dividend is paid. The ex-dividend date (ex-date) is the date on which the price reduction takes place. Investors who own stock at the close of business on the business day prior to the ex-date will receive the dividend. . A new investor on the ex-dividend date or thereafter will not receive that dividend. Those who are short stock must pay the dividend.

Exercise: To invoke the right granted under the terms of a listed option contract. Call holders exercise to buy the underlying securities, while put holders exercise to sell the underlying securities.

Exercise Price: see Strike Price.

Exit Stop - a marker placed with your broker to indicate where you would like to end your current position. Click here for the different types of exit stops available in the Best Choice program.

Expiration: The termination of an option. It is either worthless or automatically exercised for the amount by which it is In-The-Money.

Expiration Date: The final date when an option may be exercised. Many options expire on a specified date during the month prior to the delivery month for the underlying futures contract.

Exponent: The raising of a number to a specific power or the number of times one number has to be multiplied by itself to generate another number. For example, you know that 2 x 2 =4 and 2 x 2 x 2 = 8 and 2 x 2 x 2 x 2 = 16. Therefore, how many times does 2 have to be multiplied by itself to generate the number 64? The answer is 6. This is the exponent.

Exponential Growth: Growth that is based upon an exponent increase. For example, if something doubled every increment and you started with 1. The first increment is 1 doubled =2. The second increment is 2 doubled = 4. The third increment is 4 doubled =8. The fourth increment is 8 doubled = 16. This is growth occurring according to the exponent of 2. Plotting this on a regular scale would generate an upward hook. Plotting this on a logarithmic scale will give a line. This is how we view growth in Best Choice.

Exponential Decay: Decay that is based upon an exponent decrease. For example, option time values decay over time at an exponential rate. An analogy of a melting block of ice is often given to describe that eventually all the time value will be gone at expiration. This decay can be plotted on a logarithmic chart, just like exponential growth and it becomes linear (like a straight line). This is the foundation of Best Choice long-term option charts.

Exponential moving average: A moving average that places more emphasis on the current prices using an exponential weighting factor.

Extreme %: A current measurement of the movement of a stock based upon its average growth rate. On a Best Choice long-term chart, the average annual growth rate of a stock is calculated and displayed on a logarithmic chart. This is a line that has a slope. This line identifies where ½ of the trades occurred above the line and ½ of the trades occurred below the line. This can be considered a 50% line. Best Choice displays a parallel upper alert line to alert the user that prices are above 90 and are reaching a high extreme %. This is considered a time when the stock is overbought and provides a selling opportunity. You should tighten stops or get ready to take long-term profits. Best Choice also displays a parallel lower alert line to alert the user that prices are below 10 and are reaching a low extreme. This is considered a time when the stock is oversold and could provide a buying opportunity, assuming earnings are not falling with price. The extreme % is a relationship of current price to its average price. It is independent of the price to earnings relationship.

Failed High: When the last upward high fails to exceed the previous high. This is usually a sign that the stock will now turn lower.

Failed Low: When the last downward low fails to go lower than the previous low. This is usually a sign that the stock will now turn higher.

Family of Funds: Group of mutual funds managed by the same investment Management Company. Each fund typically has a different objective; one may be a growth-oriented stock fund, another may be a bond fund or money market fund. Shareholders in one of the funds can usually switch their money into any of the family's other funds, sometimes at no charge. Families of funds with no sales charges are called no load families. Those with sales charges are called load families.

Federal Reserve (Fed): The central bank of the U.S. that sets monetary policy. They regulate interest rates by establishing the rates that they will loan money to banks. They also oversee money supply and credit with the goal of keeping the U.S. economy and currency stable.

Fibonacci Numbers: The main Fibonacci numbers are 0.214, 0.382, 0.618 and 0.786. These numbers represent a retracement level from a previous high to low move, or a previous low to high move. The numbers are used to estimate support and resistance levels. The main number is 0.618. Some people feel that a 50% number is important. Usually these levels will represent a correction pullback from the previous move. Expanding these numbers by adding a 1 in front of the fraction can often be used as an expansion level beyond the previous high and low. The key number is generally recognized as 1.618.

Fibonacci Ratio: The ratio between any two successive numbers in the Fibonacci sequence.

Fill: Executed order.

Filled Order: It is filled when it is completed.

Float: The number of shares outstanding of a particular common stock.

Floor Broker: A broker on the exchange floor who executes the orders of public customers or other traders who do not have physical access to the trading floor.

Foreign Exchange Market (FOREX): A market in which foreign currencies are bought and sold and an exchange rate between currencies is established.

Fundamental Analysis: A method of analyzing the prospects of a security by observing accepted accounting measures, such as earnings, sales, assets, etc.

Funds Manager: The manager of a pool of money such as a mutual fund, pension fund, insurance fund, or bank-pooled fund. The fund manager's job is to maximize the fund's returns at the least risk possible.

Futures Contract (Futures): An agreement to purchase or sell a given quantity of a commodity (raw materials or metals), financial instrument, or currency at a specified date in the future.

Gap: A space left in a price pattern where no trading occurred. A "gap up" takes place when a market/stock opens and continues to trade at higher price levels than the previous day's high. In candlestick terminology, this is referred to as a "rising window" and is bullish. A "gap down" occurs when market/stock opens lower than the previous days low and continues to trade lower, which is bearish.

Going Long - See "Long"

Going Short - See "Short"

Golden Rule: Never let a profit turn into a loss! Use a stop to protect profits.

Good Until Cancel (GTC): An order to buy or sell will remain open until fulfilled. Most brokerage houses limit the GTC to 60 or 90 days.

Gross Domestic Product (GDP): The total value of goods and services produced by the nation. It is calculated by the Commerce Department and it is the main measure of the U.S. economic output. It is used by the Fed to help determine interest rates.

Growth Rate: The rate of growth over time. For example, if a stock went from $10 to $20 in one year, we would say the Annualized Growth Rate for that stock was 100%, because it doubled in one year. Historical growth rate refers to the growth rate over a stock's history. Best Choice Software tracks two different growth rates, one for price and one for earnings.

Growth Stocks: These are companies that are growing in both profit and revenue. Typically, as profit increases over time, so does the value of the stock of the company. This is the principal applied in the long-term portion of Best Choice. These stocks generally don't pay any dividend and use the money to reinvest and fuel their growth.

Growth Rate - The rate of growth over time. For example, if a stock went from $10 to $20 in one year, we would say the the Annualized Growth Rate for that stock was 100%, because it doubled in one year. Historical growth rate refers to the growth rate over a stocks history. Best Choice Software tracks two different growth rates, one for price and one for earnings.

Hash Marks: On a short term/candlestick chart, two small horizontal bars displayed to the right of the last candlestick. The hash mark indicates that this stock is expected to "break out" the next day. Hash marks are usually yellow. Occasionally, one hash mark may be half blue and half yellow. At times one of the hash marks may be half purple and half yellow. The color is a probability indicator. See Probability Indicators.

Head and Shoulders: A price pattern that has a center peak and a smaller peak on either side. Technical analysts generally consider a head and shoulders formation to be a very bearish indication. An inverted head and shoulders is a very bullish sign

Hedge: A strategy used to reduce risk or limit portfolio losses. For example, an investor own stock and he buys a put for protection against the possibility of a price collapse.

Hedge Fund: A private investment partnership of large investors.

High: The intraday highest trade High Bid: When a Market Maker or ECN outbids the other Market Maker. They advertise to buy stock at a higher price than any other Market Maker or ECN. Holder: The buyer of an option Holding an Option: The buyer of an option is considered holding the option

Implied Volatility: The expected volatility in a stock's return derived from its option price, maturity date, exercise price, and risk less rate of return, using an option pricing model such as Black-Scholes. It can be viewed on the Best Choice option charts

In The Money (ITM): An option that has intrinsic value is considered in the money. For a call, this is a strike price below the current price and for a put this is a strike price above the current price. See also At the Money, Out of the Money

Income Stocks: These are stocks valued for the dividend they pay. Generally, income stocks are well-established companies such as utilities, banks or real estate related stocks. Don't expect much price appreciation. If a stock pays a 5% dividend and falls 10% in value, then in the past, you were taxed on the 5% you received and your stock was worth 10% less. Essentially, you received your own money back and were taxed on it. In 2003, attempts were being made to change the tax status of dividends.

Incremental Return Concept: A strategy of covered call writing in which the investor is striving to earn an additional return from option writing against a stock position which he has targeted to sell-possibly at substantially higher prices.

Index: A statistical composite that measures changes in the economy or in financial markets. It is often expressed in percentage changes from a base year or from the previous month. Indexes measure the ups and downs of stock, bond, and some commodities markets, in terms of market prices and weighting of companies in the index. Indexes, like the Dow Jones Index, are designed to offer a snapshot of how the markets in general or certain types of stocks are performing.

Index Fund: A passively managed mutual fund that tries to match the performance of a specific index by purchasing the same securities that is held by that index.

Indicator: A method of analyzing past performance to measure the strength of an existing trend or anticipate a trend change. Most of the time they give a conflicting message, since they are based on the past movement of the stock but cannot be certain of the future direction of the stock.

Individual Retirement Account (IRA): A retirement account that may be established by any person receiving income. IRA contributions are tax deductible according to certain guidelines, and the gains in the account are tax-deferred.

Inflation: The steady erosion of value of your money. For instance, 3% inflation means that $1 effectively buys only 97 cents worth of stuff at the end of the year. This is the reason why it is important to focus on growth investments. You want your money appreciating faster than inflation is eating it up. Money in a bank returning 1% interest with a 3% inflation rate is a losing proposition. Even worse, in underdeveloped countries with high inflation rates, people spend their money quickly because they know tomorrow it will buy less. This leads to a lack of confidence in the currency, which is why inflation is a major concern of the U.S. Federal Reserve. In Best Choice, we just want to find outstanding growth potentials, so we will have more money in the future regardless of inflation.

Initial Public Offering (IPO): A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept considerable risks for the possibility of large gains. An IPO starts when an investment banker agrees to underwrite the company wishing to go public. This means they agree to buy all the available stock and have the right to subsequently resell it. The bank then sets the price that they think fairly represents the value of the company. The investment bank just wants to sell the stock and is less interested in the price movement once trading starts. Large institutional buyers usually get the best prices and most attractive IPOs.

Inside Bar (Inside Day): A stock that has traded inside yesterday's range. It is identified by a charting pattern where today's high is less than yesterday's high and the today's low is above yesterday's low.

Inside Market: The highest advertised bid and the lowest advertised offer prices among all competing Market Makers and ECN's in a NASDAQ stock.

Insider (Insider Trading): An insider is a company executive or member of the board of a publicly traded company. Given their position, they are privy to a good deal of detailed information that can affect the fortunes of a company. When they buy or sell, its known as insider trading.

The Securities and Exchange Commission closely regulates insider trading. It requires that insiders make public any time they buy or sell the company's stock or options. Some investors follow insider trading thinking that an insider buying is bullish and an insider selling is bearish. It is perfectly legal for insiders to buy or sell, but it is illegal for them to use their inside knowledge to manipulate the market.

Insiders have knowledge of new products, upcoming price increases, new marketing campaigns, company restructuring, discontinuation of unprofitable products or services, company mergers or buy outs, expected influx of capital, elimination of debt, and all sorts of other news that can affect the price of the stock. This is why their activity can sometimes be considered a barometer of stock price.

In Best Choice, when you are looking at a stock, you can click on Internet Links to connect to other websites that provide information on insider trading. For example, Yahoo news provides information on insider trading

Instinet: An electronic securities broker that large institutional firms and broker-dealers can trade stocks.

Intangible: An abstract entity such as a stock index.

Interest Rates: The Federal Reserve controls interest rates in the U.S. The chairman of the Federal Reserve, Alan Greenspan, periodically announces changes after the Federal Reserve board meets. Interest rate changes are made to stimulate or slow the economy.

When interest rates fall, the government is trying to stimulate the economy. Lower interest rates means the government will loan money at a cheaper rate to banks. Thus, the banks can loan money at a cheaper rate and bond yields will fall to compete with the rates. Normally, falling bond yields make stocks more attractive on a comparative basis. Also, companies can float bonds to borrow money at a cheaper rate increasing their overall profitability. This then eventually is positive for stocks.

In 2001, multiple interest rate cuts attempted to unsuccessfully stop the economy from heading into a recession and the stock market from entering a bear market. The effect of the rate changes takes time to develop and it wasn't until 2003 when the bull rally finally resulted. In the mean time interest rate sensitive stocks, like mortgage companies and banks profited. Real estate prices inflated for the following reason. If a person can only afford to pay $1000 a month on a house payment, then with lower interest rates that $1000 can borrow more money. Thus he can afford a more expensive house. This essentially results in an upward auctioning of house prices.

When interest rates rise, the government is trying to slow the economy. In 1981, this was done to stop the effects of inflation (see definition). Higher interest rates slow the real estate market and normally the stock market because the cost of money has increased. It is important to understand the importance of interest rates in positioning yourself and as a clue as to what type of stock may appreciate or decline.

Intraday: Term meaning "within the day," often referring to the high and the low price of a stock.

Intraday Trader: A person who buys and sells the same stock within the same day.

Intrinsic Value: The dollar amount, which would be realized if the option were to be exercised immediately. For call options, this is the difference from the strike price to the stock price. For put options, it is the difference from the stock price and the strike price. In both the call and the put options, the absolute value of the difference is the intrinsic value. OTM options do not have intrinsic value.

Investment: The goal of creating more money through the use of capital.

Investment Software: Computer software that helps investors make investment decisions by identifying situations that meet programmed parameters. Best Choice is a good example

Investor: Someone who buys a stock and holds it for an indefinite period of time, usually over 1 year. This can lower the amount of tax obligation. In Best Choice, it also refers to someone who is looking at the Earnings patterns to identify attractive growth rates. An investor is looking for financial growth and he want the stock to treat him like a bank except at a higher rate of return.

Keogh Plan: A pension account where taxes are deferred and it is generally available to those who are self-employed.

Leading Economic Indicators: A composite of 10 economic indicators developed to forecast changes in the economy. The indicators are money supply, interest rate spreads, unemployment claims, average workweek, stock prices, building permits, consumer expectations, manufacturers' new orders for capital and consumer goods.

Leg: A risk-oriented method of establishing a two-sided option position. The risk materializes from the fact that a better price may never be available and a worse price may eventually be all that is available.

Leverage: The attainment of a greater percentage of profit and risk potential. A call holder has leverage with respect to a stockholder. A call holder will have a greater percentage of profits and losses than a stockholder, for the same movement in the underlying stock.

Limit Order: A conditional order where the buyer establishes a maximum (the limit) he will pay for a stock or a seller establishes a minimum price he will sell. A limit order is not a market order, nor does it become a market order. It is an order with restrictions on price as opposed to a market order, which is an order to fill at the best price. It is possible that a limit order may never be executed because the market price may quickly surpass your limit before your order can be filled. A limit order can be used to enter or exit a position.

A buy limit order can only be executed at the limit price or lower. A buy limit order entering a trade is normally placed below the current price. If a buy limit order is placed above the market, the market price would already be below the limit and it would immediately be an order to fill at or better than the limit. If the buy limit order is part of a buy stop-limit order, the stop initiates the limit order. In this case, the limit order is triggered by the stop price, which is above the current price (see stop-limit order).

A sell limit order can only be executed at the limit price or higher. A sell limit order entering trade is normally placed above the current price. If a sell limit order is placed below the market, the market price would already be above the limit and it would immediately be an order to fill at or better than the limit. If the sell limit is part of a sell stop-limit order, the stop initiates the limit order, which is below the current price.

A major drawback to a limit order is that you may not get filled. For example, a stock trades at $50. You don't want to pay $50, but you want to buy it on a dip at $49. You put a limit order to buy at $49. You put on this buy order because you think it will go up, but you don't want to pay more than $49. If it goes up from $50 to $60, you missed the move and you were right about the direction.

Another drawback is that you may be on the wrong side of the move. Using the above example, the stock is at $50 and your limit order is at $49. Now, suppose instead of going up to $60, the stock falls to $40. When the price hits $49, you buy. You are on the wrong side of the move. When the stock hits $40, you are looking at a $9 loss. This is why in Best Choice, we don't use limit orders to enter a trade, and we use stop orders.

Limit orders to enter a trade are usually done to try to get a better price. For example, the bid on a stock is $49 and the ask is $50. A limit order between the bid and ask is an attempt to get a better price, but it may not be filled. Thus if you put on a limit order to buy at $49.10 or better, you might get filled as you have advanced the bid. You might also not get filled at all. You are just trying to get a better price.

Limit and stop limit orders should not be used to exit a trade. Since it is possible they may not be filled, you may be hanging on to a rapidly losing position waiting for a price that never occurs. It is best to use a stop (stop-market) order to just get out at the best possible price.

Limit orders may be used to exit a trade if you are monitoring the trade closely and it is currently not rapidly moving. For example, if a stock has a bid of $20 and an ask of $20.01, a limit order to buy at $20.03 would take precedence over a market order and you would be filled first. This could be important if the market moved quickly. For example, if the market quickly moved to $20.04, the limit order could not be filled, but the market order could. This is why a limit order takes the priority. The risk, however, is that if the limit order is not filled, it won't be filled on a break above the limit. This is why normally in Best Choice, we use stops on exits at well, which in this case would get us out of a trade moving against us at the best price using a market order.

Limited Risk: The risk inherent in options contracts. A buyer is limited to the premium he paid. A seller may have to perform and he has unlimited risk.

Linear Regression: A statistical technique for fitting a straight line to a set of data points.

Liquidate: Refers to closing an open position. For an open long, this would be selling the contract. For a short position, this would be buying the contract back (covering the short).

Liquidity: The ease of converting an asset to cash. Generally, as trading volume increases, the spread between bid and ask narrows. Thus, if you bought and turned right around and decided to sell, you would not lose too much due to the spread in a high volume market.

Logarithmic Chart (Log): A chart that displays data in its logarithmic form. Best Choice uses a semi-log chart where the time (on the bottom of the chart from left to right) is in an arithmetic (or non-logarithmic) progression and the price and earnings on the vertical scale are in a logarithmic progression. A logarithmic progression on a chart would be 1, 10, 100, 1000, etc, where the actual distance between 1 and 10 would be the same as the distance between 10 and 100, and 100 to 1000, etc. See also Arithmetic Chart.

Long (or Long Position)- the process of buying a stock first, with the intention of selling the stock at a later date at a higher price for a profit. You are said to be going long a stock if you are bullish and plan to buy the stock first and sell it later at a higher price.

Long Term: A perspective of a stock where you are considering the stock's earnings and evaluating the macro trends of the stock. Earnings only come out quarterly. One data point does not tell you much. With 2 earnings you can only calculate a growth rate. With 3 earnings you can calculate the growth rate and see a degree of earnings volatility. A series of three earnings is 9 months, so normally you are looking at a yearly chart at a minimum. Long term can also be considered as the time a stock takes to move from below the lower alert band to above the upper alert band.

Long-term Equity Anticipation Securities (LEAPS): A term used to describe options with expiration dates longer than nine months. It is a registered trademark of the CBOE..

Long Term Investor: Someone who is looking at macro trends and the long term prospective of a stock. The investor buys a stock at a price they consider low, expecting the price to rise, and is expecting to be in the trade for a longer time frame. The investor generally follows the trade with a looser stop than a trader to allow himself to stay in the trade longer.

Loss: Selling below the buying price, resulting in your account being debited

Low: The intraday lowest trade

Low Offer (Ask): A Market Maker or ECN is willing to sell their stock at a price lower than any other Market Maker or ECN.

"LT - Price Growth Rate By Percent" - a long term search condition listed in the wizard that allows a user to search for stocks based upon the percentage of their price growth rate. This search condition is ideal when used with "LT - Earnings Growth Rate By Percent" for finding 50/50 stocks.

LT - Earnings Growth Rate By Percent: A long term search condition listed in the wizard that allows a user to search for stocks based upon the percentage of their earnings growth rate over their complete data history. This search condition is ideal when used with "LT - Price Growth Rate By Percent" for finding 50/50 stocks.

LT - Previous Increased Earnings: A long term search condition listed in the wizard that allows a user to search for stocks that have a number of increasing quarterly earnings. For example, a number of 4 on the right side of the vertical scroller would mean 4 quarters of increasing earnings.

LT - Previous Decreased Earnings: A long term search condition listed in the wizard that allows a user to search for stocks that have a number of decreasing quarterly earnings. For example, a number of 4 on the right side of the vertical scroller would mean 4 quarters of increasing earnings.

LT - Earnings Growth Above Price Growth: A long term search condition listed in the wizard that allows a user to search for stocks that have their earnings growing faster than their price over their complete data history. This is a bullish sign. Caution: negative earnings cannot be calculated in the growth rate. If you see red bars on the bottom of the chart indicating negative earnings, the earnings growth rate may be distorted. This is because it is impossible to calculate the log of a negative number. If you can select a time frame, using more recent data, where losses are not present, it will give you a more realistic picture.

LT - Price Growth Above Earnings Growth: A long term search condition listed in the wizard that allows a user to search for stocks that have their earnings growing slower than their price over their complete data history. This is a bearish sign. Caution: negative earnings cannot be calculated in the growth rate. If you see red bars on the bottom of the chart indicating negative earnings, the earnings growth rate may be distorted. This is because it is impossible to calculate the log of a negative number. If you can select a time frame, using more recent data, where losses are not present, it will give you a more realistic picture.

LT - Overbought and Oversold Extremes: A long term search condition listed in the wizard that allows a user to search for stocks that have either low or high extremes. High extremes (>90) are stocks that are relatively high priced and could collapse. Low extreme (<10) are stocks that are relatively low priced and could run up. This is a current price to average price comparison over the complete data history.

LT - Price Growth Rate Consistency: A long term search condition listed in the wizard that allows a user to search for stocks that have a consistent pattern of price growth. Normally numbers above 95% should show consistent growth

LT - Earnings Growth Rate Consistency: A long term search condition listed in the wizard that allows a user to search for stocks that have a consistent pattern of earnings growth. Normally numbers above 95% should show consistent growth

Market Order

Methodology - The methods and or rules used to determine entries and or exits for trading stocks.

Margin: Buying a security from a brokerage house using borrowing funds. The margin is the difference between the market value of a stock and the loan a broker makes. The margin requirement, the maximum percentage of the investment that can be loaned by the brokerage firm, is set by the Federal Reserve Board.

Margin Call (Stocks): A margin stock account allows stocks to be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock and you pay interest on the borrowed money. A broker can lend you up to 50% of the value of your stocks. This is the maximum 2 to 1 leverage. If you exceed your buying power, you will generate a margin call. You will have three days to meet this call. The call will be equal to one half of the amount that you exceeded your maximum value or buying power. If you cannot pay the margin call, the broker will sell a portion of the stock to reduce you exposure back within the 2 to 1 guidelines. Margin rules are federally regulated, but margin requirements and interest may vary among broker/dealers.

Normally, you would only consider using margin in a strong market and avoid getting close to the maximum. Margin and leverage is a double-edged sword. It works great when you are right but devastating when you are wrong.

Margin Requirement (Options): The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position valuation and reasonably foreseeable intraday price changes.

Market: This term refers to an individual stock or it could include the any grouping of stocks that comprise the complete stock market.

Market Analysis: An analysis of technical, corporate and market data used to predict movements in the market.

Market Cap: The overall market value of a company's stock. For example, if a stock has floated a million shares at $100 each, the company has a market cap (capitalization) of 100 million dollars. Small cap companies have a market cap of less than $1 billion. Mid caps are between 1 and 7 billion and large caps have over $7 billion. Generally small caps have a high growth potential, are low price and are more volatile. Large caps are well established, so called "blue chip" stocks, have slower growth, are relatively safe and have good dividend incomes. It is much more difficult for a large company, such as General Motors to double in size than a small young aggressive company.

Market Maker (Specialist): An exchange member whose function is to aid in the making of a market by making bids and offers for his account in the absence of public buy or sell orders. The Market Maker must hold the stock in his own account and participate on both the buy and sell side simultaneously. Several market makers are generally assigned to a particular security. The market maker system encompasses the market makers, floor brokers, and order book officials. There are more than 800 member firms that act as NASD Market Makers. Market makers aid in the liquidity of stocks, especially when Funds want to buy or sell large blocks of stocks. In the after hours, when no one else is buying, a market marker may offer a penny for a stock that closed at $20. If you put in a market order to sell in the after hours trading, you may get filled for a penny. A market maker has to make his profits in transactions between buyers and sellers. He is not necessarily a retail investor's friend.

Market Maker Spread: The difference between the price at which a Market Maker is willing to sell a stock and the price at which that firm is willing to buy, the difference between the Market Maker's bid and ask for a given security.

Market Order: An order to buy or sell a stock at the current market price. Unless you specify otherwise, a broker will enter your order as a market order. The advantage of a market order is you are almost always guaranteed your order will be executed, provided there are willing buyers and sellers. A stop order becomes a market order when the price is hit (see stop order).

A disadvantage is the price you pay or receive when your order is executed may not always be the price you obtained from a real-time quote service or were quoted by your broker. This may be especially true in fast-moving markets where stock prices are more volatile.

Market Research: A technical analysis of factors such as volume, price trends, and market breadth that are used to predict price movement.

Married Put And Stock: A put and stock are considered "married" if they are bought on the same day, and the position is designated at that time to be a hedge. This is one of the best positions to have if one is bullish.

Maturity: The period during which a futures contract can be settled by delivery of the actuals; i.e., the period between the first notice day and the last trading day. Also, the due date for financial instruments.

Methodology: The methods and or rules used to determine entries and or exits for trading stocks.

Momentum Indicator: An oscillator line that tells us the pace of the stock and whether prices are rising or falling.

Money Supply: The total amount of currency and money in checking and savings accounts.

Most Active: A term to describe the highest volume stock at any given time.

Moving Average: An indicator used in technical analysis. Most commonly used are the 50-day and the 200-day moving average of closes. A 50-day average of closes is calculated by taking the sum of the last 50 days worth of closes divided by the sum of the number of days, which in this case is 50. If this average is calculated daily and displayed on a chart as a daily series of averages, it is described as a 'moving' average. A moving average will always lag behind the actual market, since it is based on a past number of days. If the current price has been rising over 50 days, then the 50-day moving average will be displayed as a line below the price activity. If the price activity has been falling over the 50-days, the moving average will be above the price activity. For this reason it is considered an indicator. If prices had been rising and they cross below the moving average, it is considered bearish and a good time to exit a trade. Moving averages are used to spot changes in trends. They can be misleading because different lengths of moving averages give different results.

Multiple Moving Averages: Two or more moving average lines plotted on the same chart. Normally a different color is used for each time frame. Some people use a 10-day, 20-day, and 50-day moving average. Other traders will use a 10, 50, and a 200-day average for each line. Multiple moving averages has its greatest value as a long-term indicator, adding greater confidence as the different time averages cross each other. The shortest time average will always turn first.

Mutual Fund: A group of stocks that comprise a fund, which is jointly owned by its shareholders. Typically, an investment company raises money from investors and invests it in a specific type of stocks, bonds, options, commodities or money market securities. An example of a mutual fund, might be the Fidelity Low Priced Stock Fund or the Janus Technology Fund. The company name and the purpose of the fund are often described in its name. Mutual Fund values are calculated at the end of the day; after all stock prices have closed. The individual stocks closes are multiplied by the number of shares the fund owns, summed up, and divided by the number of fund shares outstanding.

NT Securities: A brokerage house that created a custom execution platform that will accept both a Buy Stop and a Sell Short Stop on the same security for Best Choice users. Once the Buy Stop is executed, the Sell Short Stop is automatically converted to a Sell Stop to prevent being both long and short at the same time.

Naked Option Strategy: Selling an option without an offsetting risk-reducing position. This is not a sensible strategy as it leaves you vulnerable for catastrophic results. The 2 main strategies are selling a call or selling a put. If you sell a call and you own the stock, then you have the stock should it be called away from you. If you do not own the stock, this is known as being 'naked' because you do not have an offsetting position. The objective of a naked position is for the option to expire worthless and you keep the premium. In both naked cases, however, you are subjecting yourself to the unknown risks of having to buy a stock at a price above the current value, resulting in a loss money.

National Association of Security Dealers, Inc. (NASD): The self-regulatory organization of the securities industry responsible for the regulation of the over-the-counter markets.

National Association of Securities Dealers Association Quotes (NASDAQ): A completely electronic stock exchange established in 1971. There is no physical trading floor as there is with the NYSE where individuals negotiate prices. Instead, all prices and trades are settled electronically by a nationwide network of member stock brokerages, known as market makers, linked together by a central computer. Once a company is approved and listed on the NASDAQ National Market, the market makers are able to quote and trade the company's securities through a Level 1 or Level 2 electronic trading system. For more information, go to their website www.nasdaq.com

NASDAQ National Market: The NASDAQ National Market is a group of more than 3,500 companies that have a national and/or international shareholder base. They must meet stringent financial requirements, agree to specific corporate governance standards and have applied for listing.

NASDAQ Stock Market: The NASDAQ Stock Market is a major national and international stock market that uses computers and telecommunications for the trading and surveillance of more than 3500 securities. The Nasdaq Stock Market is built on a unique system of competing Market Maker firms that list specific prices for the sale or purchase of securities. The Nasdaq Stock Market also is unique in its use of a flexible computer-screen trading system that enables people to trade by computer from wherever they are located.

Net Asset Value (NAV): The total value of a mutual fund's investments. The net asset value per share usually represents the fund's market price, subject to a possible sales or redemption charge. For a closed-end fund, the market price may vary significantly from the net asset value.