Callable - A bond issue, all or part of which may be redeemed by the issuing corporation under specified conditions before maturity. The term also applies to preferred shares that may be redeemed by the issuing corporation.

Call Ratio Back spread - A very bullish investment strategy that combines options to create a spread with limited loss potential and mixed profit potential. It is generally created by selling one call option and then using the collected premium to purchase a greater number of call options at a higher strike price. This strategy has potentially unlimited upside profit because the trader is holding more long call options than short ones.

Capital gain or capital loss - Profit or loss from the sale of a capital asset. The capital gains provisions of the tax law are complicated. You should consult your tax advisor for specific information.

Capital stock - All shares representing ownership of a business, including preferred and common.

Capitalization - Total amount of the various securities issued by a corporation. Capitalization may include bonds, debentures, preferred and common stock, and surplus. Bonds and debentures are usually carried on the books of the issuing company in terms of their par or face value. Preferred and common shares may be carried in terms of par or stated value. Stated value may be an arbitrary figure decided upon by the director or may represent the amount received by the company from the sale of the securities at the time of issuance.

Cash flow - Reported net income of a corporation plus amounts charged off for depreciation, depletion, amortization, and extraordinary charges to reserves, which are bookkeeping deductions and not paid out in actual dollars and cents.

Cash Balance Plan - A type of defined benefit plan that includes some elements that are similar to a defined contribution plan because the benefit amount is computed based on a formula using contribution and earning credits, and each participant has a hypothetical account. Cash balance plans are more likely than traditional defined benefit plans to make lump sum distributions. (For more information, see Frequently Asked Questions about Cash Balance Pension Plans on the Department of Labor’s Web site, at www.dol.gov/ebsa/faqs/.)

Cash sale - A transaction on the floor of the stock exchange that calls for delivery of the securities the same day. In "regular way" trade, the seller is to deliver on the third business day, except for bonds, which are the next day.

Certificate - The actual piece of paper that is evidence of ownership of stock in a corporation. Watermarked paper is finely engraved with delicate etchings to discourage forgery.

Certificate of deposit (CD) - A money market instrument characterized by its set date of maturity and interest rate. There are two basic types of CDs: traditional and negotiable. Traditional bank CDs typically incur an early-withdrawal penalty, while negotiable CDs have secondary market liquidity with investors receiving more or less than the original amount depending on market conditions.

Charitable Remainder Trust - An irrevocable trust that pays income to a designated person or persons until the Grantor's death, when the income is passed on to a designated charity. A charitable lead trust by contrast allows the charity to receive income during the grantor's life, and the remaining income to pass to designated family members upon the grantor's death.

Codicil - A written amendment to a will.

Coinsurance - For Medicare, it is the percentage of the Medicare-approved amount that you have to pay after you pay the deductible for Part A and/or Part B. For other types of health insurance, it is usually a percentage of billed charges after you pay the deductible. For example, if you have paid the deductible and the insurance company then pays 70 percent of the remaining amount of your claim, your coinsurance is 30 percent.

Commodity Futures Trading Commission (CFTC) - Created by Congress in 1974 to regulate exchange trading in futures.

Conforming Loan - A mortgage that is equal to or less than the dollar amount established by the conforming loan limit set by Fannie Mae and Freddie Mac's Federal regulator, The Office of Federal Housing Enterprise Oversight (OFHEO) and meets the funding criteria of Freddie Mac and Fannie Mae.

Conservator - Someone appointed by a court to assume responsibility for a child, or for an adult who is not capable of managing his or her own affairs.

Conversion Arbitrage - An options trading strategy employed to exploit the inefficiencies that exist in the pricing of options. Conversion arbitrage is a risk-neutral strategy, whereby the trader buys a put and writes a covered call (on a stock that the trader already owns) with identical strike prices and expiration dates. A trader will profit through a conversion arbitrage strategy when the call option is overpriced.

Collateral - Securities or other property pledged by a borrower to secure repayment of a loan.

Commercial paper - Debt instruments issued by companies to meet short-term financing needs.

Commission - The broker's basic fee for purchasing or selling securities or property as an agent.

Commission broker - An agent who executes the public's orders for the purchase or sale of securities or commodities.

Common stock - Securities that represent an ownership interest in a corporation. If the company has also issued preferred stock, both common and preferred have ownership rights. Common stockholders assume the greater risk, but generally exercise the greater control and may gain the greater award in the form of dividends and capital appreciation. The terms common stock and capital stock are often used interchangeably when the company has no preferred stock.

Competitive trader - A member of the exchange who trades in stocks on the floor for an account in which there is an interest. Also known as a registered trader.

Compound Interest -  The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.
Suppose you invest $10,000 into Cory's Tequila Company (ticker: CTC). The first year, the shares rises 20%. Your investment is now worth $12,000. Based on good performance, you hold the stock. In Year 2, the shares appreciate another 20%. Therefore, your $12,000 grows to $14,400. Rather than your shares appreciating an additional $2,000 (20%) like they did in the first year, they appreciate an additional $400, because the $2,000 you gained in the first year grew by 20% too. If you extrapolate the process out, the numbers can start to get very big as your previous earnings start to provide returns. In fact, $10,000 invested at 20% annually for 25 years would grow to nearly $1,000,000 (and that's without adding any money to the investment)!

Conglomerate - A corporation that has diversified its operations usually by acquiring enterprises in widely varied industries.

Consolidated balance sheet - A balance sheet showing the financial condition of a corporation and its subsidiaries.

Consolidated tape - The ticker tape reporting transactions in NYSE-listed securities that take place on the NYSE or any of the participating regional stock exchanges and other markets. Similarly, transactions in AMEX-listed securities, and certain other securities listed on regional stock exchanges, are reported on a separate tape.

Convertible - A bond, debenture or preferred share that may be exchanged by the owner for common stock or another security, usually of the same company, in accordance with the terms of the issue.

Coordination of Benefits - A provision in a health insurance plan that tells which health plan or insurance policy pays first if two health plans or insurance policies cover the same benefits. If one of the plans is Medicare, federal law may determine who pays first.

Correspondent - A securities firm, bank or other financial organization that regularly performs services for another in a place or market to which the other does not have direct access. Securities firms may have correspondents in foreign countries or on exchanges of which they are not members. Correspondents are frequently linked by private wires. Member organizations of the NYSE with offices in New York may also act as correspondents for out-of-town member organizations that do not maintain New York offices.

Coupon bond - Bond with interest coupons attached. The coupons are clipped as they come due and presented by the holder for payment of interest.

Cover On A Bounce - The covering of a short position after it has reached and bounced off a level of support. This strategy waits for the price to move to a support level, instead of selling before, to see if the level will hold - because the trader will benefit if it doesn't hold. Once the security bounces, it is clear the security will have trouble moving down further, so the trade covers the short position.

Credit Default Swap - (CDS)A swap designed to transfer the credit exposure of fixed income products between parties.

The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the product. By doing this, the risk of default is transferred from the holder of the fixed income security to the seller of the swap.

Banks and other institutions have used credit default swaps to cover the risk of default in mortgage and other debt securities they hold.

CDSs are financial devices that allow banks to spread the risk of default and enable hedge funds to efficiently speculate on the creditworthiness of countries (governments), companies or consumers. In a typical CDS deal, a hedge fund will sell protection to a bank, which will then resell the same protection to another bank, and such dealing will continue, sometimes in a circle. This practice has the potential to put investors into webs of relationships which are not transparent.

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

For example, the buyer of a credit swap will be entitled to the par value of the bond by the seller of the swap, should the bond default in its coupon payments.

Credit Score - A measurement of a consumer's creditworthiness based on an analysis of that consumer's credit history. Each credit reporting company uses a different scoring formula. The most important is the FICO score (scores computed by Fair Isaac Corp.) since it is used by most financial companies. FICO scores range from 300 to 850 (the higher the better). The average FICO score is currently 723.

Cross-Listing - The listing of a company's common shares on a different exchange than its primary and original stock exchange. In order to be approved for cross-listing, the company in question must meet the same requirements as any other listed member of the exchange, such as basic requirements for the share count, accounting policies, filing requirements for financial reports and company revenues.

Cumulative preferred - A stock having a provision that if one or more dividends are omitted, the omitted dividends must be paid before dividends may be paid on the company's common stock.

Cumulative voting - A method of voting for corporate directors that enables the shareholders to multiply the number of their shares by the number of directorships being voted on and to cast the total for one director or a selected group of directors. A 10-share holder normally casts 10 votes for each of, say, 12 nominees to the board of directors. One thus has 120 votes. Under the cumulative voting principle, one may do that or may cast 120 (10 x 12) votes for only one nominee, 60 for two, 40 for three, or any other distribution one chooses. Cumulative voting is required under the corporate laws of some states and is permitted in most others.

Current assets - Those assets of a company that are reasonably expected to be realized in cash, sold or consumed during one year. These include cash, U.S. Government bonds, receivables and money due usually within one year, as well as inventories.

Current liabilities - Money owed and payable by a company, usually within one year.

Current return - Also known as return. The dividends or interest paid by a company expressed as a percentage of the current price. A stock with a current market value of $40 a share paying dividends at the rate of $3.20 is said to return 8% ($3.20÷$40.00). The current yield on a bond is figured the same way.