Investment Glossary

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

Making a Market

the net ownership position in a particular security. If an investor owns 500 shares of Telecom shares, that person is said to be long 500 shares of Telecom. Likewise, if the more unusual situation of owning 1,000 shares of a particular company at a time when 300 shares of the same company have been sold short produces a long position of 700 shares. Being long indicates an expectation of rising share prices. - Also called long. - See Short Position 1. (Note: Some jurisdictions do not permit short sales of shares.)

Margin account

a brokerage account that permits an investor to purchase securities on credit and to borrow on securities already in the account. Interest is charged on any borrowed funds and only for the period of time that the loan is outstanding.

Margin trading

the buying and selling of securities in an account in which money is owed to the brokerage firm.

Marginal tax rate

tax paid on the last portion of income expressed as a percentage. It is important for an investor to know his or her marginal tax rate in order to make intelligent investment decisions. For example, a decision whether or not to invest in tax paid funds is often a function of the investor's marginal tax rate.

Market capitalisation

the total value of all of a firm's outstanding shares, calculated by multiplying the market price per share times the total number of shares outstanding. - Also called market value.

Market maker

one (as a person or firm) that, on a continuous basis, buys and sells a security for one's own account. Market makers normally try to profit from a rapid turnover in security positions rather than from holding those positions in anticipation of gradual price movements. Specialists on the organised exchanges and dealers in the over-the-counter market are market makers.

Market price

the price at which a security trades in the secondary market.

Market risk

1 - the risk of general market pressures causing the value of an investment to fluctuate. Market risk is highest for securities with above-average price volatility and lowest for stable securities such as government bonds.

Market sentiment

the feeling of the investment community regarding the expected movement of the share market. For example, if market sentiment is bullish, then most investors expect an upward move in the share market.

Maturity value

the amount to be paid to the holder of a financial obligation at the obligation's maturity. In the case of a bond, the maturity value is the principal amount (face value) to be paid by the issuer to the owner at maturity.

Modern portfolio theory

the theory that says its possible to select an optimal combination of assets such that the investor secures the highest possible return for a given level of risk or the least possible risk for a given level of return. Using portfolio theory, an investor assembles a group of assets on the basis of how the individual assets interact with one another. (Correlation) Thus, a security or asset class would be selected not on the basis of expected performance in isolation, but rather on the expected influence to risk and return of the investor's entire portfolio.

Monetarism

an economic theory, the proponents of which argue that economic variations, such as changes in prices and output, are primarily the result of changes in the money supply. Proponents of monetarism believe that changes in the money supply precede changes in other economic variables including share prices and that a rational policy calls for moderate, steady increases in the money supply. - See also Money supply.

Monetary policy

Central Bank actions to influence the availability and cost of money. Specific policy includes changing the interest (discount) rate, altering bank reserve requirements and open-market operations. In general a policy to restrict monetary growth results in tightened credit conditions and (at least temporarily), higher rates of interest. This situation can be expected to have a negative impact on the security markets in the short run, although the long-run effects may be positive because of reduced inflationary pressures.

Money supply

the amount of money in the economy. Since the money supply is considered by many to be a critical element in determining economic activity, the financial markets attach great importance to Central Bank reports of changes in the supply. For example, consistently large increases in the money supply bring fears of future inflation. There are a variety of measures of the supply of money depending on how strictly it is defined. - Also called money stock.

Mortgage

1 - (verb) to pledge a specific property as security for a loan. 2 - (noun) a loan secured over property.

Mortgage banker

an organisation making real estate loans that are then resold by the mortgage banker to another party. The mortgage banker's income derives from the fees it charges to originate and service the mortgage. Sale of mortgages gives the mortgage banker more funds to use in making additional loans.

Mortgage bond

a long-term debt security secured by a lien on specific assets - normally fixed assets such as real estate.

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z