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Investing Glossary

Buy 1 call at a lower strike and sell 2 calls at higher strike using the same expiration. The strategy is a cheaper alternative to buying a call spread but with a similar upside risk profile to a short call strategy. This strategy should be implemented if the investor forecasts the stock to rise above the lower strike but not above higher strike. Risk Level: High

Form 1099-DIV is a financial form that financial institutions use to report payments made to taxpayers to the IRS. If you received interest payments, dividends or capital gains distributions in a year, you’ll receive a 1099-DIV the following February. You’ll need this information to complete your annual tax return.

(Note: You may receive multiple 1099-DIVs in a year, one from each financial institution. However, you may not receive one if your payments totaled under $10.)

A public key is a unique wallet identifier that uses a string of letter and numbers as an address. It is viewable to the public and is used to receive cryptocurrencies. A private key is an investor's individual password for accessing their cryptocurrency wallet. This is not viewable to the public and should be protected.

The ADP National Employment Report tracks U.S. nonfarm employment trends in the private sector. Data is gathered by ADP (Automatic Data Processing), which handles payroll for ~20% of all privately-employed U.S. workers across 400,000 companies. 

The report is released in a partnership with Moody’s Analytics and is divided into four segments:

  1. A national overview that analyzes changes by business size and sector
  2. A small business breakdown by size and sector
  3. A franchise breakdown by industry that includes fast food, hotels and real estate
  4. A regional assessment that highlights changes in six key states by sector and industry 

The report also includes data on changes in annual pay rates. It’s released two days prior to the Bureau of Labor Statistics’ employment situation report each month.

Multi-asset ETFs that fall under the Absolute Returns category do not adhere to a specific investment strategy to achieve returns. Instead, multi-asset ETFs that are classified under the Absolute Return category take an opportunistic investing approach based on current market conditions and trends in order to achieve the highest level of returns possible, within the ETF’s risk parameters. The most common type of multi-asset ETFs that are classified under the Absolute Returns category include unconstrained ETFs and long/short ETFs.

Your account value, or total equity, is the dollar value of your account’s total holdings. You calculate your account value by adding your cash amount to the cumulative market value of your securities. Then, you subtract the market value of any short positions. (In other words, account value is the value of your cash plus invested positions if you liquidated your holdings immediately.) 

An account closure occurs when an institution closes an account. Once an account closes, no money can move in or out of the account. 

Banks and brokerages may force account closures in certain circumstances, such as extended periods of inactivity, $0 or negative balances or when fraud is suspected. 

Customers may also initiate an account closure by liquidating their assets, transferring institutions or switching account types within the same institution. (Such as moving from an individual to joint brokerage accounts.)

An acquisition occurs when one company purchases enough of another company’s stock to gain control. Owning at least 50% of a firm’s shares effectively grants control over the target firm’s operations. 

Acquisitions may be voluntary or involuntary on the targeted firm’s side. Due to their legal and tax implications, an investment bank may assist the process. 

Companies may initiate acquisitions to reduce costs or competition, expand into new markets, diversify their holdings or acquire new technologies or revenues. Potential downsides include culture clashes, layoffs, supplier pressures and brand damage.

A fund’s active management return is the mathematical difference between the fund’s return and a selected benchmark’s return in an actively managed fund. (Like the S&P 500 or Nasdaq Composite.) Depending on both the fund and reference benchmark’s respective performance, the return may be positive or negative. 

The metric aims to measure any returns resulting from the fund’s active trading strategy, rather than regular market events. (Active management means the fund makes active buy, hold and sell decisions, rather than passively following a benchmark index.)

After-hours trading occurs on major U.S. stock exchanges (like the NYSE) between 4 p.m. and 8 p.m. Eastern Time, Monday-Friday. 

During this time, investors place bids through their brokerages, which relay the details through electronic communication networks (ECNs). If an ECN can match buyers and sellers near the same price points, the trade goes through. 

Some investors use after-hours trading to capitalize on late news. However, it’s riskier due to lower trading volumes, stunted liquidity and higher volatility.

Agencies bond ETFs generally invest in two different types of agency debt instruments: federal government agency bonds, which are issued by federal government agencies like the Federal Housing Administration or the National Mortage Association; or government-sponsored enterprise bonds, which are issued by agencies like the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage (Freddie Mac).

Agency MBS ETFs purchase mortage-backed securities that are sponsored by government agencies like the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage (Freddie Mac). Agency MBS ETFs often purchase mortage-backed securities from banks, who sell a large percentage of their active mortgages on the secondary mortage market. Mortage-backed securities are often grouped into pools based on common features, a process known as securitization. Agency MBS ETFs make either semi-annual or monthly interest payments to investors.

Alpha-seeking ETFs seek to outperform the broader equity market by employing some sort of investment strategy to give the ETF an “edge.” Alpha, also known as excess return, is the amount of which an investment outperforms or underperforms its benchmark. Alpha-seeking ETFs often maintain diversified portfolio allocations to manage the level of unsystematic risk, or risk specific to an individual security in a portfolio. Alpha-seeking ETFs may also employ Modern Portfolio Theory (MPT), which uses measures risk return metrics like a sharpe ratio to optimize a portfolio's holdings.

An altcoin is simply any cryptocurrency that is not Bitcoin. Since Bitcoin was the first cryptocurrency, the consensus is that an altcoin describes coins that are alternatives to Bitcoin.

Alternative investments (also called alternative assets) don’t fit the “traditional” categories of stocks, fixed-income (bonds) and cash investments. Examples include real estate, commodities, cryptocurrencies and hedge funds. 

Alternative assets tend to have higher or different risk and return profiles than traditional securities. Many are also more complex and relatively illiquid, meaning it takes more time and effort to turn them into cash. 

An American Call Option is a contract that gives the buyer the right to buy 100 shares of an underlying equity at a predetermined price (the strike price) for a specific time period defined by the expiration date. The seller of a Call Option is obligated to sell the underlying security if the Call buyer exercises his or her right to buy on or before the option expiration date. For example, one contract of the XYZ May 21 60 Calls entitles the buyer to purchase 100 shares of XYZ common stock at $60 per share at any time prior to the option's expiration date of May 21.

American options can be exercised or assigned at any time prior to the expiration date.

An American put option is a contract that gives the buyer the right to sell 100 shares of an underlying stock at a predetermined price (the strike price) for a specific time period defined by the expiration date. The seller of a Put option is obligated to buy the underlying security if the Put buyer exercises his or her right to sell on or before the option expiration date. For example, 1 contract of the XYZ May 21 60 Puts entitles the buyer to sell 100 shares of XYZ common stock at $60 per share at any time prior to the option's expiration date of May 21st.

Annualizing a number involves converting a short-term data point (such as a quarterly interest rate) into an annual rate. The resulting number is said to be “annualized.” 

Annualization commonly pops up in loan annual percentage rates (APRs) and individual and corporate income projections. Investors also use annualized investment outcomes to compare securities or determine if an asset’s projected returns meets their goals. 

Asia-Pacific ETFs invest in securities from countries like China, Japan, Australia, and other notable Asia-Pacific countries. There are a variety of sub-categories that fall under Asia-Pacific ETFs, the most prominent being China-specific ETFs. China-specific ETFs are strong options for investors who believe that China will continue its rapid economic expansion and that Chinese companies will benefit from this expansion. General Asia-Pacific ETFs, meanwhile, are viable options for investors looking for exposure to a variety of emerging markets, like China and India, while remaining exposed to established and developed markets, like that of Japan.

Asian ETFs invest in the stocks of micro-cap, small-cap, mid-cap, and large-cap companies from countries like China, Japan, India, and other notable Asian countries. There are a variety of sub-categories that fall under Asian ETFs, the most prominent being China-specific ETFs. China-specific ETFs are strong options for investors who believe that China will continue its rapid economic expansion and that Chinese companies will benefit from this expansion. General Asia ETFs, meanwhile, are viable options for investors looking for exposure to a variety of emerging markets, like China and India, while remaining exposed to established and developed markets, like that of Japan.

Multi-asset ETFs classified under the Asset Allocation category adhere to an investment strategy that diversifies holdings across multiple asset classes. Asset Allocation ETFs hold equities, fixed income, real estate, and other asset classes in their portfolio. Because multi-asset ETFs that fall under the Asset Allocation category are diversified across multiple asset classes, they are typically more stable and less risky than asset-specific ETFs.

An asset class is a group of investment vehicles that share similar characteristics and market behaviors. Common asset classes include stocks, bonds, cash, real estate, commodities, derivatives and currencies. Each class has unique risks, liquidity, volatility, revenue, taxation and regulations, though assets within the same class may share similarities. Since different classes may have little or negative correlation to each other, diversifying asset classes may reduce risk and boost long-term returns. 

Asset-backed ETFs invest in asset-backed securities, which are financial securities collateralized by a pool of assets like loans, leases, royalties, or receivables. Asset-backed ETFs purchase securities whose underlying assets are often illiquid. Asset-backed securities are often grouped into pools based on common features, a process known as securitization. Asset-backed securities are also separated into different tranches based on their default risk.

An assignment means that the seller has the obligation to either purchase or sell stocks at the strike price.

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