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Wall Street And Stock Terms

( Originally Published 1939 )

What is a Corporation?

A corporation is a fictitious person. It consists of several natural persons, who in the name of the corporation, are authorized by law to transact a business. The instrument which defines the rights and duties of the corporation is called a charter. It is issued by state governments under seal.

What is meant by Capital Structure?

The plan adopted by a corporation for securing capital necessary for its activities is called the capital structure.

What is a joint Stock Company?

A joint stock company is a partnership in which the affairs of the business are conducted by officers chosen by the stockholders.

What is Stock?

In a general term, it is applied to the shares in the capital stocks of banks, insurance, industrial, railroad and other incorporated or joint stock companies.

What is Capital Stock?

The capital stock of a company is the sum total of all the shares issued at their par value.

What is Treasury Stock?

Treasury stock is the stock of a corporation which has been issued once, and has either been bought back or donated to the treasury. The law provides that no corporation can sell its capital stock under its par value. However, once the stock has been issued and acquired back by the treasury, they can sell it at any price the board of directors see fit. Capital or unissued stock is often and erroneously referred to as treasury stock. When buying stock in new enterprises, determine whether it is capital stock or treasury stock. If the latter, why?

What is a Share?

A share represents a component part of the capital stock. It is commonly issued in denominations of $1, $5, $10, $25, or $100. The stock certificate represents the number of shares.

What is a Stock Certificate?

A stock certificate is a written or printed instrument of a corporation or joint stock company issued to the stockholder, certifying the value of each share and the number of shares the certificate represents.

What is a Common Stock?

As a rule the common stock has the voting power of the corporation, although there are exceptions. When the interest has been paid on the corporation's bonds, debentures and preferred stock, the remainder of the earnings are available for dividends. The amount payable is determined and declared by the board of directors and may vary from time to time. Such earnings might be, and often are, sufficient to make the common stock yield a higher income than preferred. Extra dividends, stock split-ups, etc., as a rule are divided among common stock-holders. Common stock can be said to represent the basic owner-ship of the company.

What is a Preferred Stock?

A preferred stock is one which, after the interest on bonds and debentures has been paid, takes preference over common stock on earnings. Preferred stock usually carries a specific dividend yield, and when the dividend is not earned, it can, at the discretion of the directors, be paid in whole or in part out of surplus. If not paid, the dividend accumulates and must be paid before any payment is made to the common stockholders, providing it carries a cumulative clause which most preferred stocks do. Some preferred stocks have voting power. Others do not, except in the case of defaulted dividends. Preferred usually takes preference over assets in dissolution, although there are in-stances where no such provision is made.

What is a Participating Preferred?

A participating preferred stock is the same as preferred, with the added feature that it participates with common. After it has received its specific dividend and an equal amount has been received by common, then both preferred and common participate alike. In other cases a limit is placed upon its participation. Determine from the certificate as to what extent it participates.

What is a Convertible Stock?

This usually applies to a preferred stock, which may at some designated time and at some designated price be converted into the common stock of the same company.

Are There Any Advantages in a Convertible Stock?

At times, yes. A preferred stock may be selling at par, and the common stock considerably above. The conversion privilege at such times becomes valuable.

What is the Purpose of Issuing Convertible Stocks?

They are usually issued to stimulate distribution of the preferred stock, and make the offering more attractive.

What is a Stock Assessment?

A stock assessment is the sum levied pro rata upon the stock-holders of a corporation to cover losses, etc. Many stocks are non-assessable and so state the fact on the face of their certificate. Practically all bank stocks, however, are assessable in the event of failure.

What is a Street Certificate?

A Street Certificate is a stock certificate used for negotiable purposes, the assignment being made in blank on the back of the certificate, and the signature or endorsement thereto being guaranteed by a bank, or some reliable stock house, as being authentic and genuine.

What is a Bond?

A bond is written or printed obligation under seal, issued by a company or corporation, municipal or state government, or by the federal government. Bonds of business corporations are usually secured by mortgages on their real estate or plant and equipment. Municipal bonds are issued by the vote of the people or their representatives, and for their payment a sinking fund is accumulated by a yearly tax rate being levied on all the real property within the limits of the municipality. Government bonds are bonds issued by the federal government. Their names are usually derived from the interest they bear, and the time when due. Thus United States 4's 1945, is understood to mean United States bonds bearing four percent interest and due in 1945. The same parlance is used in describing corporate bonds.

What is a Coupon Bond?

A coupon bond has coupons or certificates of interest attached to them. When the interest becomes due these coupons are detached and surrendered, upon receipt of the interest represented by them. The interest coupons on government coupon bonds are payable to the bearer, and will be cashed by any bank or banker in the United States.

What are Registered Bonds?

A registered bond is one payable to the owner as registered in the books of the corporation or government issuing it. Registered bonds can be transferred only by assignment and registry on the books of its issuer. The interest on registered bonds is paid by checks, payable to the registered owner and sent to him.

What is a Convertible Bond?

A convertible bond is one which may be converted into preferred or common stock, as may be specified in its indenture, within a certain period of time.

What is the Advantage of a Convertible Bond, if any?

At times a bond may be selling at par, and the company's stock considerably above. The conversion privilege at such a time becomes valuable.

What is the Par Value of a Bond?

The par value of a bond is the face value, or the denomination as expressed on the face of the bond.

What is the Market Value of a Bond?

The market value of a bond is the amount at which it is quoted in the market. Bonds that sell above par are at a premium when they are worth more than their face value. Below par, or at a discount, when they are worth less than their face value.

What are Bond Quotations?

Bond quotations are the market price or rates that bonds sell for. Bonds are usually quoted flat, that is, the quoted price is for the bond as it is at the time of the quotation, which includes accrued interest. After the closing of the books, however, registered bonds are quoted less the interest.

What is a Bond Price Flat? See bond quotations.

What is a Debenture?

A debenture is a direct obligation of the company, but not secured by a mortgage. (See text matter.)

What Precaution is Used Against Counterfeiting?

Few counterfeit efforts are successful. Elaborate precautions are taken by engraving companies, who are approved by various stock exchanges, together with their use of a steel over-lapping process which prevents the successful photographing, duplication and counterfeiting of stocks and bonds. Another protective feature is the registrar and transfer.

What is a Registrar and Transfer?

All stocks listed on stock exchanges are required to have a registrar and transfer office. The entire stock of the corporation is registered at the registrar's office and then deposited with the transfer agent. The registrar acts as a check on the transfer office, and combined with the fact that no corporation whose stock is listed can act as its own transfer agent, eliminates the danger of over-issuance, as well as counterfeiting. Such offices also enable a holder of a stock to have it transferred quickly and efficiently.

What is a Cash Sale?

Whenever a sale is made which calls for the delivery of the securities the same day, the transaction is said to be a cash sale.

What is a Regular Sale?

A regular sale, or the regular way, is the delivering of the securities by the seller upon the business day following the day upon which the contract of sale was made.

What is an Asked Price?

The asked price is the price which is asked by the seller of the security. Somewhere between the bid and asked price, an actual price is agreed upon.

What is a Bid Price?

A bid price is the price offered for a security by a prospective buyer.

What is a Market Price?

A market price is the actual price at which a security is selling in the open market.

What is a Firm Price?

A price which is quoted and held to for a definite period of time is called a firm price.

What is a Nominal Price?

When there are no actual transactions or trades the probable value of a security as a basis for trading is estimated, and is called a nominal price.

What is a Put and Call?

A Put and Call is an option given to a purchaser, whereby he may either sell or buy a designated stock, at a certain price, within a fixed period of time.

How Does a Put Work?

B makes an agreement with X, whereby X agrees to buy from B 100 shares of stock at a price, say of $50.00 per share, at anytime during the duration or life of the Put. If B was buying stock in anticipation of a rise in the market and the market should decline to say $40.00 per share, he can deliver the 100 shares to X at the Put price of $50.00 per share. "Puts" are usually used as insurance when buying or going "long" of the market.

How Does a Call Work?

B makes an agreement with X, whereby X agrees to sell to B 100 shares of stock at a price, say of $70.00 per share, at any-time during the duration or life of the call. If B was selling in anticipation of the market declining, and the market should rise to $80.00 per share, he could call on X during the life of the Call to deliver him 100 shares at $70.00 per share. Calls are usually used as insurance when selling or going "short" of the market.

What is a Straddle?

A straddle is a combination of both the Put and Call, and gives the purchaser the option of acting either way, within the time limit.

What Does a Put and Call Cost?

The usual cost of a Put or a Call on 100 shares is $137.50, for one month and gives the purchaser the option of acting either way, within the time limit.

What Obligation is There to a Put and Call?

There is no obligation on the part of the purchaser of a Put and Call to exercise it. It is simply an option to either buy or sell a stock at a certain price, and if the market moves against him, he has no reason to exercise his option. His loss is confined to the cost of the option.

Why are Puts and Calls Used?

Many traders deal in Puts and Calls rather than the actual buying and selling of stocks. For example, a trader who believes the market is going up buys a Call on 1000 shares of Compass Motor for thirty days. On the day he purchased the Call the market may have been, say $50.00 per share. It is unlikely that any one will sell him a Call permitting him to call the stock at $50.00 per share thirty days later. They may sell him the option, however, three points above the market, that permits him to call the stock at $53.00 per share. If the market goes merely to $53.00 during the thirty days there is no reason to exercise his option, but if it went to say $55.00 per share, he has two points in his favor or $2,000 profit. The Call cost him $137.50 per 100 shares, or $1,375.00 plus tax and commission for his 1000 shares. The opposite is employed when purchasing a Put.

What is Meant by Hedging with Puts and Calls?

Puts and Calls are used in two ways. A Call may be purchased by a large "short-seller" to protect himself against an advancing market. In other words, if he was going short ten thousand shares of stock at the current market price of $50.00 per share, he buys a Call for hedging purposes. If the market ran away and went to $70.00 per share, and his Call permits him to buy the stock at $53.00 per share, his loss is thus confined to 3 points plus the price of the Call. On the other hand, consider a bull operator. He believes the market is going to advance and buys ten thousand shares of Compass Motor Company at $75.00 per share. To protect himself he buys a 30 day Put at $72.00 per share, which permits him to deliver to the seller of the Put ten thousand shares of stock at $72.00 per share, anytime during the thirty day period. Instead of the market advancing as he had anticipated, it breaks to $65.00 per share. Nevertheless the ten thousand shares he purchased at $75.00 per share can be delivered to the seller of the Put at $72.00 per share, and he thus confines his loss to 3 points, plus tax and commission and the price of the Put, irrespective of how low the market sinks. You will also find the small trader using Puts and Calls for speculative purposes with no intention of actually buying or selling the stock. For instance, Jones buys a Call for 100 shares of stock at $52.00 per share for a period of a week or a month. In his transaction he is hoping that the market will go up. If it goes to 55, he delivers his Call to some Stock Ex-change house. They in turn sell 100 shares of stock in the market at 55, and call on the person who issued the Call to deliver them 100 shares at 52. They deliver Jones a difference check between 52 and 55, less their commission and tax. Thus you find the large "short-seller" buying Calls to protect himself against a rising market, and the small trader buying Calls hoping that the market will rise. You reverse the modus operandi on a Put.

What is Meant by Rights?

A right is the privilege given to old stockholders to participate in the issuance of new stock at a definite price, usually lower than the prevailing market price.

Can Rights be Sold?

Rights can usually be sold for the difference in price of the new stock and the prevailing price of the old.

What is Meant by Ex-Rights?

When the rights to subscribe have expired, in accordance with the date indicated by a corporation, the stock then sells Ex-Rights, the privilege of subscription to the new stock having expired.

What are Dividends?

Dividends are all or a portion of the earnings that a corporation distributes among those holding its stock.

What is Meant by Ex-Dividend?

When a stock sells Ex-Dividend, it means the transfer books are closed to the new purchaser during that particular dividend period.

What is Negotiable Paper?

Negotiable paper is any document which may be transferred from one owner to another by indorsement or delivery, or both, as promissory notes, drafts, bills of exchange, etc.

What is a Draft?

A draft is a written order by one person on another, for the payment of a specified sum of money to a third person, or to his order.

What is a Sight Draft?

A sight draft is a draft drawn and payable "at sight," that is, when it is presented to the drawee for payment.

What is a Time Draft?

A time draft is a draft payable on a specified date; or a certain time after date; or a certain time after sight.

What is a Letter of Credit?

A letter of credit is a letter issued by a banking house to a person who desires to travel abroad. The letter is usually ad-dressed to the foreign correspondents of the bank issuing it, requesting them to furnish the traveller with such funds as he may require, up to the aggregate amount named in the letter.

What are Travellers Cheques?

Travellers cheques are substitutes for letters of credit and bills of exchange. They are similiar in form to bank bills. They are issued for fixed printed amounts, with the equivalent of each denomination in the money of the principal European countries, and are payable to order, after being signed and countersigned by the purchaser or holder. They are cashed without discount or commission by an extended list of banks and bankers, and are received in settlement of hotel bills by the principal hotels in Europe.

What are Bills of Exchange?

Bills of Exchange are written orders, such as letters of credit, express money orders, telegraphic money orders, and other instruments which permits making payments at distant places without the transmission of money. Such methods, which avoids the risk and expense of sending the money itself, are called Bills of Exchange.

What is Exchange?

Exchange is the method of making payments at distant places without the transmission of money.

What is an Exchange Center?

An exchange center is some recognized money center.

Where are the Principal Money Centers?

In the United States they are located in New York, Boston, Philadelphia, Chicago, St. Louis, Baltimore, Cincinnati and San Francisco. In Europe they are located in London, Paris, Antwerp, Geneva, Amsterdam, Hamburg, Frankfort, Berlin and Vienna.

What are the Different Kinds of Exchange?

Exchange consists of two kinds; domestic and foreign.

What is Domestic Exchange?

Domestic exchange is exchange payable in the country in which it is drawn. The domestic bills of exchange are commonly called drafts.

What is Foreign Exchange?

Foreign exchange is exchange payable in another country, other than that in which it is drawn. It is by means of the system of foreign exchange that the people of the various nations pay their debts to one another.

What is the Par of Exchange?

The par of exchange is the established value of the standard unit of one country expressed in that of another. It is of two kinds, intrinsic and commercial.

What is the Intrinsic?

Using the former gold standard of America as an example, the pound sterling of Great Britain contained 113 grains of pure gold, and the dollar of the United States 23.22 grains of pure gold. Since 113 grains is 4.8665 times greater than 23.22 grains, the pound sterling was worth $4.86 65/100. The par value of the intrinsic gold pound sterling is now $8.2397. The new dollar contains only 15 5/21 grains. (See text on money.)

What is the Commercial?

The commercial exchange, commonly called the course of ex-change, is the market value of the standard unit of money of one country expressed in the currency of another. (See text on foreign exchange.)

What is Arbitrage of Exchange?

The calculation of the relative value of exchange at the same time in two or more places, with the purpose of taking advantage of the difference in price. It is conducted largely and most profitably by cable, buying in the cheaper and selling in the dearer market.

What is Interest?

Interest is that which is paid for the use of money. The essential elements of interest are the principal, the time, the rate, the interest, and the amount. The sum upon which interest is charged is termed the principal; the period for which the principal bears interest is the time; the annual rate charged for the use of the principal is the rate of interest; the product of the rate of interest and the time is the percent of interest; the result obtained by taking a percent of interest of the principal is the interest; the sum of the principal and interest is the amount.

What is Legal Interest?

Legal interest is computed at the rate established by law, when no specific agreement is made. The legal rate of interest, being established by State statutes, varies in different states.

What is Usury?

Usury is any rate of interest in excess of the legal rate.

What is Simple Interest?

Simple interest is the interest allowed for the use of the principal only. The term, interest, is always understood to mean simple interest. If other forms of interest are meant they are specifically designated, as compound interest, periodic interest, etc.

What is Periodic Interest?

Periodic interest is simple interest on the principal and on any interest remaining unpaid.

What is Compound Interest?

Compound interest is the interest paid on the principal and on the principal increased by the interest, at the expiration of regular intervals.

What is a Business Cycle?

A business cycle can be said to be a complete change and cycle of business activity. The cycle starts with the very beginning of a general depression and continues throughout the falling period, into the beginning of improvement, on through the rising period, into very prosperous times, and ends in a reaction that marks the beginning of another period of depression. While prices are falling, purchasers hold off for lower prices, and producers curtail production, which in turn increases unemployment. When prices reach bottom and the spread between production and consumption begin to close, we enter the improvement period and from there on business activity begins to resume its normal function.Whenever the financial and business structure becomes top-heavy as the result of. strained credit and inflated conditions, a crisis occurs which starts a period of deflation. This constitutes the first phase of the cycle, which is followed by the selling of securities and commodities at greatly reduced prices throughout the falling period. At the end of the second phase you find stock prices low, speculation inactive, dividends, if not abandoned altogether are very low, and unemployment acute. The third phase, which is the beginning of improvement, finds stocks of goods reduced, debts paid off, and an increased volume of trade manifested first in retail trade. This period of revival eventually ends in another period of prosperity which constitutes the complete business cycle. We have passed through fourteen such major cycles in the past one hundred and twenty years.

What is a Crisis and Panic?

A crisis can be said to be the turning point of a cycle of prosperity, which sometimes results in a temporary business or financial panic. At such times conditions are often intensified out of all proportion to actual conditions. Prices become so unstable, commodities and purchasing power alike fluctuate to such an extent, that tens of thousands of manufacturers through-out the country find themselves competing with each other. However, after deflation has run its course equilibrium sets in.

What are Business Barometers?

Business barometers are graphs or charts which furnish an index to forecast future trends by comparing them with business trends of the past. Such barometers afford an accurate picture of past performances of various lines of industry, measured against the present date. Commodity prices, construction figures, railroad loadings, average price of stocks, bank statements, and other numerous indices, are used as business barometers.

What are Stock Market Forecasts?

Predictions as to the future trend of the market are known as stock market forecasts.

What is Meant by the Trend of the Market?

The movement of the market, either up or down, is spoken of as the trend. There are two types of trends, major and minor. A major trend, either upward or downward, is a sustained movement over a long period of time. The zigzag of a market up or down, over a few days or several weeks, is known as a minor trend. For instance, in a major bull movement with an upward trend, in which a temporary decline sets in, the market may be spoken of as having a minor downward trend. The opposite is true in a bear market.

What is a Bull Market?

When the general movement of prices is upward, it is said to be a bull market.

What is a Bear Market?

When the general movement of prices is downward, it is said to be a bear market.

What a Double-Top?

When a market has advanced over a long period of time, under bullish influence, and meets with a strong decline, recovers from this decline, reaches its former high again, and then starts to decline once more, it is regarded as a double-top, meaning the long bull movement has ended.

What is a Double-Bottom?

The opposite of a double-top.

What is the Price System?

The medium of exchange. (See text on money.)

What is the Price Level?

The general average of representative commodities is known as the price level. However, the drastic change in one commodity does not necessarily affect the general price level. For instance, the rise in the price of wheat might offset the decline in the price of corn. It is the average price of all commodities, which fit into our economic system, upward or downward, which raises or lowers the price level.

What is a Credit Structure?

Credit constitutes approximately 95 percent of all business activity. Actual money plays but little part in the gigantic economic scheme of things. This business, whether it be the functioning of banks, the erection of buildings, the building of railroads, the mining of raw material, the constant blazing of the furnace fires of industry, or the wide expanse of our wheat fields, as well as the issuance of billions in stocks and bonds, is all classified under the vast machine known as the credit structure.

What is Our Economic System?

The factors which contribute to the national income is known as the economic system. Water power, timber resources, vast mineral deposits, oil wells, agricultural lands and other natural resources, which combine with industry to turn these basic raw materials into consumable articles form the basis of practically all national income.

What is a Stock Broker?

Stock brokers, in the parlance of the Street, were known as anyone engaged in the buying, selling and distribution of stocks and bonds. The Security Exchange Commission has ruled, however, that any one who effects transactions in securities other than for his own account is a broker.

What are Broker's Loans?

There are two different kinds of loans known as brokers loans, namely, call money and time money. Call money can be called, or the loan terminated, at anytime simply by calling for it. Unless otherwise specified it is payable the same day called, but it is seldom that any loan is called after 12.15; P.M. for the current day. The rate of interest fluctuates constantly, especially in an active market, hence call loans are made and renewable from day to day. Time money, on the other hand, is what the name implies. Loans are made for a definite period of time, running from thirty days to six months, and occasionally longer. Such loans are secured by stocks and bonds.

Who Supplies the Money for Broker's Loans?

As has been previously discussed in the text, hundreds of banks, corporations, insurance companies, and others, forward their surplus funds to their New York correspondents, to be used either at their discretion or in call loans. The latter insures them immediate liquidity, practically any hour of the day. The sources from which broker's loans originate can be said to include the small bank, far back in the Rocky Mountains, to the various foreign capitals of the world. The aggregate of these loans run into billions of dollars.

What Security is There for Broker's Loans?

If there could be such a thing as perfect security, then money which is advanced for broker loans would occupy the foremost place in such a category. Call loans, which constitute possibly eighty or ninety percent of broker's loans, are callable on demand from day to day, and thus enjoy a liquidity unattainable in any other endeavour. Banks which loan money to brokers, take as collateral only the soundest securities, and, on a declining market, brokers must constantly keep their marginal accounts up to the standard proportion required by the banks which make these loans. In other words, if any bank loans $75 against a stock which has a market value of $100, and the stock dropped to $50 per share, the bank would insist that the broker reduce the loan to $37.50, or else put up two shares of stock as col-lateral instead of one. The broker in turn calls his customers for more margin, and their failure to provide it necessitates selling them out. It should be stated here that when a broker calls for margin, and the failure of the customer to provide it necessitates the closing of the account, the broker should not be blamed. It should be remembered that the difference between the margin on the stock, and its cost, is borrowed from the bank by the broker, and when markets decline they demand more margin from him. Failure to provide the additional margin will result in the bank selling his account out, which is in effect your own.

It may seem a harsh rule, nevertheless, it is the only one under which banks, insurance companies, and hundreds of corporations, will permit their surplus to come to market. They demand and obtain ironclad collateral and quick liquidity.

What is the Highest Rate Paid for a

New York Stock Exchange Seat?

Seats on the New York Stock Exchange reached an all-time high in 1929 when they sold for $625,000. The lowest price recorded in the past 50 years was in 1890 when a seat sold for $17,000.

High and Low for Curb Seats?

The high for Curb seats was $254,000 in 1929, and, the low was $3,900 in 1923.

What is a Short Sale?

The short-seller in the stock market simply sells stock that he does not own at the moment, but which he expects to be able to acquire later, at a price lower than at which he sold. Every sale calls for a delivery, hence the short-seller must borrow the stock he sells short, and repay it when he buys back to cover.

Does a Short Sale Ever Help the Market?

The short-sale is the governor which keeps markets from running away. If it were not for the "bears" or short-sellers, who exercise restraint in a bull market, stocks would reach an impossible stage of inflation. The short-seller also exercises an-other beneficial influence on the market. When markets are breaking and every one is selling, the short-seller is then buying to cover his short position. In such markets the short-seller in covering his position, is the real cushion which keeps markets from breaking wide open.

What Interest is Charged the Customer on a Short Sale?

Unlike the long sale, the short-seller pays no interest on the marginal difference when he sells short. The broker borrows the stock from some one who has it on hand, and puts up cash with the lender, in the amount of the market value of the security. The man who lends the stock receives the cash equivalent of it, so instead of making a charge for the lending of stocks, he pays interest to the broker on the money. This interest the broker keeps for himself for having negotiated the loan of the stock for his customer.

What is the Function of the Stock Clearing House?

The stock clearing house consists of two branches, day and night. The day branch handles stocks and bonds that are cleared for money, and the night branch handles those which are cleared for stocks. Its purpose is to minimize the number of steps involved in trading in stocks, and to reduce as far as possible the broker requirements of bank credit and money. To illustrate: X sells 100 shares to Y at 90 and Y sells them to broker Z at 93. Usually X would in this case know nothing about the deal between Y and Z. In the night clearing house, where stocks are cleared, the three transactions are brought together and X is directed to deliver the 100 shares of stock directly to Z. This automatically settles Y's contract to buy and sell, which in effect cancel one another. This makes it unnecessary for him to compare records and receive and deliver the shares himself, and avoids the need for arranging loans to handle the transaction.

To simplify its operation the night branch arbitrarily fixes, at the end of each business day, a delivery or settlement price for the day. For purposes of delivery the closing bid price for the day is usually selected. Payment for delivered stock balances is based, not upon the actual prices at which X. Y. and Z. bought and sold the stocks, but the selected price. Any inequalities that may exist between the delivery price for a stock, and the actual price at which it may have been bought or sold, are adjusted with the night clearing branch by check or draft as the case may require.

What is Investment Banking?

Investment banking or the banker is one who buys and sells securities for his own account. His duties consist primarily of underwriting or distributing new issues of securities. Many organizations find it more profitable when issuing new stocks to sell them outright to investment bankers, rather than to attempt distribution themselves.

What are Investment Trusts?

An Investment Trust is an organization which combines the funds of a multitude of small or large investors and invests such funds in a diversified list of stocks. A man who possesses only a few hundred dollars might feel more secure in having his funds in diversified lines of industry. This he cannot accomplish very well with limited capital. He thus seeks to achieve his aim through Investment Trusts. The shares of such organizations are issued against their assets which consists of a portfolio of diversified stocks, subject to constant change in the discretion of the management. The management's object is to enhance the value of their holdings or assets from time to time, either by trading in the market, or through the appreciation of stocks they hold in their portfolio. Dividends collected from their holdings are distributed as dividends to the holders of their own shares. These organizations should not be confused with holding companies, or other forms of trust, such as fixed trusts, etc.

What is a Fixed Trust?

A group of stocks are selected for a portfolio and deposited with some bank or custodian. Shares are then sold in this port-folio or fixed trust. All dividends accruing to the portfolio are distributed pro rata to the shareholders, and in the event any security goes to default, it is elimated, and sold for what it will bring and the proceeds divided among the holders of the Fixed Trust's shares. Usually such a trust is set up for twenty years, after which time all stocks in the portfolio are sold and the proceeds divided up.

What is a Financial Statement?

A statement giving the financial set-up, the value of the assets, the earnings, liabilities, etc. It also gives some indication of the managerial policy and abilities.

What is a Balance Sheet?

A balance sheet is a statement of the financial condition of a business at a given time.

What is a Floor Trader?

A floor trader is one who deals in active stocks, buying and selling for his own account, usually on quick turnovers, and for small and sure profits. They will change their positions in the market very quickly, and may be bulls one hour and bears the next.

What is a Specialist?

The specialists are a group of dealers who specialize in one or a limited number of securities, making their headquarters at a post at the part of the floor where the securities are dealt in. They are ready under all conditions of the market, to buy or sell the securities that they devote their attention to. In doing this, like a floor trader, they help to create a continuous market, and render the commission brokers business of executing orders for the public much easier. Without the specialist, fluctuations between sales of certain stocks would be much greater, and at times bids to buy or offers to sell the less active stocks would be lacking entirely.

What are Odd Lot Dealers?

The odd lot dealers specialize in the handling of orders for less than 100 shares, the Stock Exchange unit of trading. These dealers have developed a continuous market to meet the rapidly growing demands of investors limited to trading in less than 100 share units. These dealers buy 100 share lots on the floor and split them up as required to fill the small orders that they have accumulated. Or they will buy small lots, and, combining them, sell in 100 share lots on the floor.

What are Arbitragers?

Arbitragers are a group of traders who buy in one market and sell quickly in another. Arbitraging means taking quick ad-vantage of a temporary price difference in a stock between two markets. Most arbitraging takes place between New York and London, though you often find small differentials in price on the various domestic exchanges. Such operations are usually carried out from brokers offices which have direct wires.

What is a Stop-Loss Order?

It is an order used when the customer desires, after having purchased stock, to limit his possible losses to a few points. For example, if after buying a stock on margin, the trend of the market is downward, the customer may specify to the broker a price below the market quotation on his stock, at which it is to be sold.

Is a Stop-Loss Order Always Effective?

The answer is no. The market may drop very rapidly and the customer fails to get out at his stop price. For instance, he may buy a stock at 150 and place a stop loss at 147. The broker puts this order in, but if there are others ahead of it and it does not sell at 147, it then becomes an "at the market order" and the broker is obliged to sell the security even though he may sincerely anticipate an immediate rally. If the customer desires to stop a loss, and at the same time does not want to sell at less than the stop price, he can make use of a "stop and limit" order, as follows. "Sell 100 U. S. Steel common at 147, stop limit 146. In the first instance the broker cannot sell for less than 147, and in the latter he must sell at 147 if possible, and not less than 146.

What is a Market Corner?

When one or more operators have accumulated the majority of the available stock of a corporation, and the short interest finds no stock available when they go to cover, it is then said that a corner exists. At such times those who possess the stock can demand their own price. (See text, Hill and Harriman.)

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