Investment and Finance

The term Leverage in relation to securities is the principle of increasing return without increasing investment. Buying stock on margin is an example of leverage. In finance, it means the relationship of a firm's debt to its equity, as expressed in the Debt to Equity Ratio. If the company earns a return on the borrowed money greater than the cost of the debt it is successfully applying the principle of leverage.

Maturity value as it relates to securities is the amount an investor receives when a security is redeemed at maturity not including any periodic interest payments. This value usually equals the par value, although on zero coupon, compound interest and multiplier bonds, the principal amount of the security at issuance plus the accumulated investment return on the security is included.

Over the Counter is a market for securities that in most cases are not listed on one of the major stock exchanges. These securities are traded by dealers who act as principals rather than as agents. The over the counter market is the principal market for U.S. government and municipal bonds.

Penny Stocks are a term for low priced, high-risk stocks that usually sell for less than $1 per share. These shares usually require a special margin maintenance requirement, and purchases are often limited to unsolicited orders.

Power of Attorney is the legal right assigned by a person or institution upon another person to act and represent the original person. In the securities industry, a Limited Power of Attorney is given by a customer to a representative of a broker or dealer who would normally give a registered representative trading discretion over the customer's account. The power is limited in that neither securities nor funds may be withdrawn from the account. In the securities industry, an Unlimited Power of Attorney given by a customer to a representative of a broker or dealer would normally give a registered representative full discretion over all transactions in the customer's account.

A Prospectus is a document that contains important material information for an impending offer of securities. It contains most of the information included in the registration statement. It is used for solicitation purposes by the issuer and underwriters.

A securities Proxy is a formal authorization power of attorney from a stockholder that empowers someone else to vote on his or her behalf.

A Revocable Trust ia an agreement that gives income producing property to an heir and that may be altered numerous times, as often as the creator pleases. The entire trust can be canceled or revoked.

The expression Short Against the Box is a situation in which a taxpayer is both long and short owner in the same security, at the same time in his or her poertfolio account. It is a practice usually employed to defer tax liability on capital gains. Although the customer sells the stock short, he or she actually owns the security, which is held in the broker's "box." The aim is to protect a capital gain in owned shares, while deferring the taxes due if the shares were actually sold and the capital gain reported. This way, the investor can wait until he or she is in a more favorable tax situation to sell the securities.