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Glossary

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L
Large Cap Generally, companies with a market value (capitalization) of over $10 billion. Large cap companies are typically well-established with solid histories of growth and dividend payments.
Large-Cap U.S. Stock Funds Domestic Large-Cap Stock Funds invest mainly in equity securities issued by companies with median market capitalization that fall in the top 5% of the largest 5,000 U.S. firms.
Last Split Date The last date on which the shares of a security were increased or decreased by splitting.
Last Trade The price at which the last trade was executed; after market close, this is the closing price.
Last Trade Date and Time The date and time the security was last traded.
Lehman Brother (LB) Bond Indexes Bond indexes are performance benchmarks for different sectors of the bond market. Indexes cannot be invested in directly, are unmanaged and do not incur management fees, costs or expenses.
Leverage The degree to which a company or individual is using borrowed money.
Liabilities The sum of all outstanding debts -- what a company or individual owes its creditors.
Limit Order

A request to buy or sell a security only at a price that you specify (the Limit) or better. Place a limit order when you're willing to wait for the price to move and risk that the order might not be executed, because execution of limit orders is not guaranteed. However, if executed, the price you set or better is guaranteed. Buy orders will execute at or below your limit and Sell orders will execute at or above your limit. For comparison, see Market Order.

You may also place time conditions on a limit order. See Time Limits/Conditions.

In a Fast Market you can use a limit order in the opposite way to help reduce risk. In this case you can place a limit order to make sure that you don't buy or sell at a dramatically different price than you expect. When a stock price is moving fast, you can use a limit order to state the maximum price you are willing to pay (or, if selling, the minimum price you are willing to accept). In this case, place your limit at or above the current ask price on a Buy, or at or below the bid price on a Sell order. However, if the stock doesn't hit your limit price, the order won't be executed.

Liquid Assets A term describing investments that can easily be turned into cash. See Cash Investments.
Liquid Investment An investment that can be easily converted to cash.
Liquid Reserve Personal savings that can be accessed immediately.
Liquidation When you buy a security that creates a cash debit or Reg T Call, and during the following trading day or later you sell another security to cover the cash debit or Fed Call - it results in a trade violation called a Liquidation.
Liquidity The ability of an asset to quickly be converted into cash. Generally, the greater the number of buyers and sellers of a particular asset, the more liquid it is considered to be.
Load The sales charge that some fund companies include when you buy or sell their mutual funds. Some funds have a "front-end" load, meaning you pay the sales charge at the time of purchase. Some funds have a "back-end" load, meaning the sales charge is paid at the time of the sale.
Long-term Debt Liabilities that are repayable for one year or longer.
Lot A group of shares in a single security that were bought or sold together.
Low The lowest execution price of a trade that day, or on the last trading day.


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M
Maintenance Call

A "call" for additional funds or acceptable collateral to be immediately deposited into your margin account. This type of margin call is generated when the equity in a margin account does not meet Schwab's established minimum requirement. This can be caused by fluctuations in market prices or your additional use of margin. For comparison see Reg T.

All margin accounts are governed by the rules and regulations of the Federal Reserve, NYSE, and/or NASD. At Schwab, a margin account generally receives a maintenance call when equity falls below 30% or $5,000.

Margin "Buying on margin" means buying securities with money borrowed from a broker/dealer. It allows you to buy certain securities using the assets in your account as collateral for the loan.

Margin can also mean the amount of equity required to buy securities purchased on credit.
Margin Account This type of brokerage account allows you to borrow funds, using your own marginable securities as collateral. The borrowed funds may be used for any purpose, including the purchase of more securities. For comparison see Cash Account.
Margin Balance The net open balance in your margin account. If negative, you owe Schwab this amount. If positive, the balance is available to earn interest.
Margin Call This generic term refers to both maintenance calls and "Regulation T" calls (also called Reg T or Fed calls). An investor who receives a margin call is required to deposit additional funds or securities in a margin account either because the equity in the account does not meet Schwab's established minimum equity requirement (maintenance call) or because additional securities have been purchased or sold short.
Margin Interest Margin interest accrues daily and is charged monthly based on your margin balance.
Marginable A security that may be used as collateral in a margin account. Most exchange and Nasdaq listed securities trading at over $3.00 per share are marginable at Schwab, as are most investment grade fixed income securities, and mutual funds. However, exchange and listed stocks must be $5.00 or greater for initial purchases on margin. (SchwabFunds require a 30-day waiting period before they can be margined.)
Market Capitalization The total value of a company's stock.
Market Conditions The stability or volatility of a securities market at a given time.
Market Indicators A variety of indices that give an indication of the overall direction and strength of the market.
Market Maker An individual, corporation, partnership or group of firms that creates the Bid and Ask prices for a given OTC security. The market maker generally maintains inventory and stands ready to buy and sell the security at the quoted price to maintain an orderly market. A Specialist serves a similar purpose for an exchange-traded security.
Market Order A customer request to buy or sell as quickly as possible at the best price available (the prevailing price) when the order reaches the marketplace. A market order guarantees execution, but not price. For comparison, see Limit Order.
Maturity Date Date on which the face value and final interest payment of a fixed income security (for example, bond or note) is due and payable by the debt issuer. For bonds, maturity can range from one day to 30 years or more.
Minimum Quantity Instructs the specialist to buy or sell a specified number of shares at a limit price with the condition that the first fill must be for a minimum number of shares. Use this condition when you will accept a partial fill, but will only accept a minimum number of shares to be bought or sold.
Money Market Account A vehicle in which accumulated funds are invested in various short-term securities.
Money Market Fund A highly liquid mutual fund that invests in short-term securities and seeks to maintain a stable net asset value of $1 per share.
Mortgage-backed Bonds Bonds that derive their income from a pool of mortgages.
MSCI-EAFE Index The acronym for the Morgan Stanley Capital International -- Europe, Australia, Far East Index. It is a performance benchmark for international stocks.
Mutual Fund An investment company that pools money from shareholders and invests in a variety of securities, including stocks, bonds and money market instruments. A mutual fund stands ready to buy back (redeem) its shares at their current net asset value, which depends on the total market value of the fund's investment portfolio at the time of redemption. As open-end investments, most mutual funds continuously offer new shares to investors.
Mutual Fund Company An investment company that pools money from shareholders and invests in a variety of securities such as stocks, bonds, and money market instruments.
Mutual Fund Family The array of mutual funds offered by a single Mutual Fund Company. Individual funds can have varying degrees of risk and investment objectives.

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N
Nasdaq National Association of Securities Dealer Automated Quotations system, designed to facilitate over-the-counter stock trading.
National Association of Securities Dealers (NASD) Supervised by the Securities Exchange Commission, the NASD standardizes investment practices, sets ethical standards, develops rules and regulations and enforces the rules with an industry disciplinary body.
Net Asset Value (NAV) The total value of the assets, including stocks, bonds, and/or other securities, owned by a mutual fund, less all liabilities, divided by the number of outstanding shares. This value does not include any sales charges, such as a Load or 12b-1 Fee. The NAV is calculated once each day after the close of the market.
Net Change The amount and direction of a security's price change since its previous close.
Net Income For a business this is the total revenue minus total expenses, which is the same as its net profit or Earnings.
No-Load Mutual Fund A mutual fund that has no sales charge when shares are bought or sold. However, a Transaction Fee or Short-term Redemption Fee may apply to some no-load mutual fund transactions.
Nominal Rate Also known as nominal yield. The percentage of annual interest which would be earned from a fixed income investment (for example, bonds) if the security was purchased at par value; actual rate of return is usually different.

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O
Odd Lot This is a securities trade made for less than the "normal trading unit" (Round Lot). In stock trading, any purchase or sale of less than 100 shares is generally considered an odd lot.
Open The price at which a security opened for trading on a given day.
Open Order A buy or sell trade order that has not yet been executed or cancelled.
Open-end Fund A mutual fund with no limit to the number of shares that can be issued. These shares are purchased directly from the fund company itself, or through a brokerage firm.
Option A contract that permits the owner (depending on the type of option held) to purchase or sell a security at a specific ("strike") price until a specified expiration date. An option to purchase a security is a "call." An option to sell a security is a "put." The price of the option itself is the "premium." You must be pre-approved by Schwab to trade options. See Call Option and Put Option.
Order Conditions When placing a trade order, these are the specific instructions you include regarding time and execution conditions. Time conditions indicate how long to leave the order open; execution conditions specify how you want the order to be filled. Also see Special Conditions.
Ordinary Income Income other than a capital gain. For example, ordinary income includes wages, dividends and interest earned on savings.
Over-The-Counter (OTC) Over-the-Counter refers to stocks not traded on registered exchanges. Many OTC stocks are traded through the National Association of Securities Dealers Automated Quotations (NASDAQ), National Market System (NMS), OTCBB (Bulletin Board) or the Pink Sheets.

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P
Pay Date The date the shares from a split or dividend are sent to the shareholders.
Performance The results of an investment's activity over time. Past performance does not guarantee future performance.
Pink Sheet Stocks These are over-the-counter stocks, which are not included in the daily NASDAQ over-the-counter listings. The National Quotation Bureau publishes a daily listing of bid and ask prices for pink sheet stocks.
Portfolio All of the various investments held by an individual investor or organization.
Position Security holdings in an account or portfolio.
Preferred Stock A class of stock that pays dividends at a specified rate and has preference over Common Stock in the payment of dividends and the liquidation of assets. Preferred stockholders may have different voting rights. Not all securities have preferred stocks.
Pre-Tax Profit Gains from a sale before taxes have been paid.
Price The cost for a security. For mutual funds, price is the net asset value (NAV). For mutual funds with a load, the price including the load is the Public Offering Price (POP).
Price/Earnings Ratio Price of a stock divided by earnings per share.
Primary Beneficiary A person or organization designated to receive the funds or other property from a trust, insurance policy, retirement account or other contract.
Primary Market The market where new securities are issued (usually through a brokerage firm). For comparison, see Secondary Market.
Principal The amount of money that is financed, borrowed, or invested.
Program Trading Computer buying (buy program) or selling (sell program) of baskets of 15 or more stocks by index arbitrageurs, specialists, or institutional traders.
Prospectus A legal document offering securities or mutual fund shares for sale.

When you invest in a mutual fund, the prospectus will provide valuable information about the specific goals, fees, and practices of the fund.

Federal and state securities regulators require that the prospectus include the fund's investment objectives, policies and restrictions, fees and expenses, and how shares can be bought and sold. It should be read carefully prior to investing.
Public Offering Price (POP) The price an investor pays for a share of a Load mutual fund.

The POP is calculated by taking the Net Asset Value (NAV) and adding any load costs, charged by the Mutual Fund Company to maintain the fund.

If the fund is a No-Load fund the POP and the NAV are the same.
Put Option Gives the buyer the right to sell a number of shares of stock at a price until the option's expiration date. Put buyers hope the price of the stock will fall. Puts may also be purchased to protect an investment in case the price of the stock goes down. You must be pre-approved by Schwab to trade options. See Call Option.

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Q
Quantity The number of shares you want to Buy, Sell or Sell Short.
Quote 31 The current "spread" relating the bid and the ask for a security. The bid is the highest price at which someone is willing to buy a security. The ask is the lowest price at which someone is willing to sell a security.

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R
Redemption Fee Some mutual funds impose a charge when you sell your shares within a certain period of time, which can vary. A redemption fee is also known as a back-end Load. See the fund prospectus for details about the designated holding period. Also, see Short-term Redemption Fee.
Regulation T Call Also called a Fed Call - This is the amount an investor must deposit if buying on margin or selling short, as required by the Federal Reserve Board's Regulation T. Current Federal Reserve requirements are 50% of the cost of the trade for equities. Schwab reserves the right to impose higher or Special Maintenance requirements.
Reinvestment Using earnings or distributions from an investment to purchase additional shares in that security, rather than taking them as cash.
Return The change in value of an investment over a given period of time, expressed as a percentage of the total amount invested (including reinvestment of any dividends and capital gains distributions).
Rights Rights allow existing shareholders of a corporation to subscribe to shares of a new issue of common stock before that stock is offered to the public. A right usually has a life of 2 to 4 weeks, is transferable, and entitles the holder to buy the new common stock below the Public Offering Price. Rights are often granted to protect existing shareholders from the effects of dilution.
Risk The possibility for loss of some or all of the money you invest. Also, the degree of probability for such a loss.
Risk Tolerance The degree to which an investor can financially and emotionally withstand declines in the value of his or her investments.
Risk/Return Factor The relationship between an investment's growth potential and its exposure to loss.
Round Lot The basic unit of trading for a particular security. For stocks, the generally accepted unit of trading is 100 shares. See Odd Lot.
Rule 80-B When there is extraordinary market volatility, Rule 80-B takes effect when the Dow Jones Industrial Average (DJIA) drops a predetermined value below its closing value of the previous trading day. Trading in stocks will halt on the NYSE, AMEX, Regional exchanges and NASDAQ for a set amount of time based on the amount of the decline.

A 10 percent drop (Level 1) in the DJIA will halt trading for:
  • 1 hour if the decline occurs before 2:00 p.m. Eastern Time (ET)
  • 30 minutes if the decline occurs between 2:00 p.m. and 2:30 p.m.(ET)
  • No halt if the decline occurs after 2:30 p.m. (ET)
A 20 percent drop (level 2) in the DJIA will halt trading for:
  • 2 hours if the decline occurs before 1:00 p.m. Eastern Time (ET)
  • 1 hour if the decline occurs between 1:00 p.m. and 2:00 p.m. (ET)
  • Closed for the remainder of the day if the decline occurs after 2:00 p.m. (ET)

A 30 percent drop (Level 3) in the DJIA, at any time, will result in the market closing for the remainder of the day.

*The point levels will be reset quarterly at 10, 20, and 30 percent of the DJIA by using the DJIA average closing values of the previous month, rounded to the nearest 50 points. Point levels will be adjusted on Jan. 1, April 1, July 1 and Oct. 1. For the exact point levels, please feel free to contact a Schwab representative at 800-435-4000.
Russell 2000 Index A performance benchmark for the U.S. domestic stocks asset category. This index is comprised of 2000 public companies with market capitalization's ranging from approximately $180 million to $1.4 billion.

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