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Trading Security

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Definition of Trading Security

Trading Security Image 1

Trading Security

A debt or equity security bought and held for sale in the near term to generate income on short-term price changes.



Related Terms:

Available-for-Sale Security

A debt or equity security not classified as a held-to-maturity security or a trading security. Can be classified as a current or noncurrent investment depending on the intended holding period.


Asset-backed security

A security that is collateralized by loans, leases, receivables, or installment contracts
on personal property, not real estate.


Convertible security

A security that can be converted into common stock at the option of the security holder,
including convertible bonds and convertible preferred stock.


Day trading

Refers to establishing and liquidating the same position or positions within one day's trading.


Debt Security

A security representing a debt relationship with an enterprise, including a government
security, municipal security, corporate bond, convertible debt issue, and commercial
paper.



Derivative security

A financial security, such as an option, or future, whose value is derived in part from the
value and characteristics of another security, the underlying security.


Employee Retirement Income Security Act of 1974 (ERISA)

A federal Act that sets minimum operational and funding standards for employee benefit
plans.


Trading Security Image 2

Equity Security

An ownership interest in an enterprise, including preferred and common stock.


Exchangeable Security

security that grants the security holder the right to exchange the security for the
common stock of a firm other than the issuer of the security.


Fixed-dollar security

A nonnegotiable debt security that can be redeemed at some fixed price or according to
some schedule of fixed values, e.g., bank deposits and government savings bonds.


Fixed-income security

A security that pays a specified cash flow over a
specific period. Bonds are typical fixed-income securities.


floating-rate security

security paying dividends or interest that vary with short-term interest rates.


Held-to-Maturity Security

A debt security for which the investing entity has both the positive
intent and the ability to hold until maturity.


Host security

The security to which a warrant is attached.


Hybrid security

A convertible security whose optioned common stock is trading in a middle range, causing
the convertible security to trade with the characteristics of both a fixed-income security and a common stock
instrument.


Insider trading

trading by officers, directors, major stockholders, or others who hold private inside
information allowing them to benefit from buying or selling stock.


Last trading day

The final day under an exchange's rules during which trading may take place in a particular
futures or options contract. Contracts outstanding at the end of the last trading day must be settled by delivery
of underlying physical commodities or financial instruments, or by agreement for monetary settlement
depending upon futures contract specifications.


Marketable security

An easily traded investment, such as treasury bills, which is
recorded as a current asset, since it is easily convertible into cash.



Monthly income preferred security (MIP)

Preferred stock issued by a subsidiary located in a tax haven.
The subsidiary relends the money to the parent.


Mortgage pass-through security

Also called a passthrough, a security created when one or more mortgage
holders form a collection (pool) of mortgages sells shares or participation certificates in the pool. The cash
flow from the collateral pool is "passed through" to the security holder as monthly payments of principal,
interest, and prepayments. This is the predominant type of MBS traded in the secondary market.


Nonmarketable Security

A debt or equity security for which there is no posted price or bidand-
ask quotation available on a securities exchange or over-the-counter market.


Primitive security

An instrument such as a stock or bond for which payments depend only on the financial
status of the issuer.


Program trading

Trades based on signals from computer programs, usually entered directly from the trader's
computer to the market's computer system and executed automatically.


Security

Piece of paper that proves ownership of stocks, bonds and other investments.


Security

Either the collateral on a loan, or some type of equity ownership or debt, such
as a stock option or note payable.


Security

A share or an interest in a property or an enterprise such as a stock certificate or a bond.


Security

Collateral offered by a borrower to a lender to secure a loan.


Security characteristic line

A plot of the excess return on a security over the risk-free rate as a function of
the excess return on the market.



Security deposit (initial)

Synonymous with the term margin. A cash amount of funds that must be deposited
with the broker for each contract as a guarantee of fulfillment of the futures contract. It is not considered as
part payment or purchase. Related: margin


Security deposit (maintenance)

Related: Maintenance margin security market line (SML). A description of
the risk return relationship for individual securities, expressed in a form similar to the capital market line.


Security market line

Line representing the relationship between expected return and market risk.
security market plane A plane that shows the equilibrium between expected return and the beta coefficient
of more than one factor.
security selection
See: security selection decision.


Security Market Line

A graph illustrating the equilibrium relationship between the
expected rate of return on securities and their risk as measured by
the beta coefficient


security market line

Relationship between expected return and beta.


Security selection decision

Choosing the particular securities to include in a portfolio.


Security Value

The monetary value placed on security by a lender in determining the extent to which it can make loans against such security.


Social Security Act of 1935

A federal Act establishing Old Age and Survivor’s
Insurance, which was funded by compulsory savings by wage earners.


Trading

Buying and selling securities.


Trading costs

Costs of buying and selling marketable securities and borrowing. trading costs include
commissions, slippage, and the bid/ask spread. See: transaction costs.


Trading halt

trading of a stock, bond, option or futures contract can be halted by an exchange while news is
being broadcast about the security.


Trading paper

CDs purchased by accounts that are likely to resell them. The term is commonly used in the Euromarket.


Trading posts

The posts on the floor of a stock exchange where the specialists stand and securities are traded.


Trading range

The difference between the high and low prices traded during a period of time;
with commodities, the high/low price limit established by the exchange for a specific commodity for any one day's trading.


Underlying security

Options: the security subject to being purchased or sold upon exercise of an option
contract. For example, IBM stock is the underlying security to IBM options. Depository receipts: The class,
series and number of the foreign shares represented by the depository receipt.


Variable price security

A security, such as stocks or bonds, that sells at a fluctuating, market-determined price.


At-the-money

An option is at-the-money if the strike price of the option is equal to the market price of the
underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.


Buy limit order

A conditional trading order that indicates a security may be purchased only at the designated
price or lower.
Related: Sell limit order.


Common stock equivalent

A convertible security that is traded like an equity issue because the optioned
common stock is trading high.


Fixed-income equivalent

Also called a busted convertible, a convertible security that is trading like a straight
security because the optioned common stock is trading low.


ISMA

International security Market Association. ISMA is a Swiss law association located in Zurich that
regroups all the participants on the Eurobond primary and secondary markets. Establishes uniform trading
procedures in the international bond markets.


Market order

This is an order to immediately buy or sell a security at the current trading price.


Market value

1) The price at which a security is trading and could presumably be purchased or sold.
2) The value investors believe a firm is worth; calculated by multiplying the number of shares outstanding by the
current market price of a firm's shares.


Premium

1) Amount paid for a bond above the par value.
2) The price of an option contract; also, in futures
trading, the amount the futures price exceeds the price of the spot commodity. Related: inverted market premium payback period. Also called break-even time, the time it takes to recover the premium per share of a
convertible security.


Primary market

The first buyer of a newly issued security buys that security in the primary market. All
subsequent trading of those securities is done in the secondary market.


Sell limit order

Conditional trading order that indicates that a, security may be sold at the designated price or
higher. Related: buy limit order.


Semi-strong form efficiency

A form of pricing efficiency where the price of the security fully reflects all
public information (including, but not limited to, historical price and trading patterns). Compare weak form
efficiency and strong form efficiency.


Straddle

A strategy used in trading options or futures. It involves
simultaneously purchasing put and call options with the same exercise price
and expiration date, and it is most profitable when the price of the underlying
security is very volatile.


Weak form efficiency

A form of pricing efficiency where the price of the security reflects the past price and
trading history of the security. In such a market, security prices follow a random walk. Related: Semistrong
form efficiency, strong form efficiency.



 

 

 

 

 

 

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