Common stock: A security that represents ownership in a corporation’s assets and earnings. The owner of common stock is allowed an investor vote on corporate affairs such as the election of directors. A common stockholder is also awarded a share in the corporation's profits. These profits are paid out in dividend payments or the capital appreciation of the stock.

 

Security: The paper certificate that proves ownership of stock, bonds, and other investments is considered a security.

 

Shares: A certificate or book entry representing ownership in a corporation.

 

Corporation: A legal "person" that is its own entity and is separate from its owners. This legal entity can own assets, take on liabilities, and sell securities.

 

Dividend: A portion of the company's profits paid to common or preferred shareholders. An example is a stock selling for $20 a share with an annual dividend of $1 a share gives the investor a 5% profit.

 

Asset: Any possession that has value is an asset.

 

Liability: A financial obligation that requires payment at a specific time in the future to satisfy the terms of the contract, is a liability.

 

Limit Order: A request to buy stock at or below a specified price or to sell a stock at or above a specified price. An investor can specify a certain price to buy or sell a stock and the order can only take place if the stock reaches that price or better.

 

Market order: The order to immediately buy or sell a stock at the current trading or market price is called a market order.

 

Stock split: The decision by a company to split their outstanding shares of stock into a larger number of shares. The following facts would be true for a company that split 1 million shares two-for-one: the company would have 2 million shares, an investor with 100 shares before the split would hold 200 shares after the split, and the price of the stock is one-half of the price the day prior to the split.

 

Short selling: An investor establishes a market position by selling shares of stock they do not own. These shares must be borrowed to deliver them to the buyer. The borrowed shares must eventually be bought to close out the transaction. This strategy is used when it is anticipated the price of that stock is falling.

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