A tax imposed by the federal government upon companies with retained earnings deemed to be unreasonable and in excess of what is considered ordinary. Taobiz explains Accumulated Earnings Tax The federal government produced this tax to deter investors from negatively influencing a company's decision to pay dividends. Essentially, this tax persuades companies to issue dividends, rather than retaining the earnings. The premise behind this tax is that companies that retain earnings typically experience higher stock price appreciation. Although this is beneficial to stockholders, as capital gains taxes are lower than dividend taxes, it is detrimental to the government because tax revenues decrease. By adding an extra tax upon a firm's retained earnings, the taxman will either collect more taxes from the company or persuade them to issue dividends, thereby allowing the government to collect from the stockholders.
An exchange-traded fund that has a manager or team making decisions on the underlying portfolio allocation or otherwise not following a passive investment strategy. An actively managed ETF will have a benchmark index, but managers may change sector allocations, market-time trades or deviate from the index as they see fit. This produces investment returns that will not perfectly mirror the underlying index. Watch: 4 Reasons To Invest In ETFs Taobiz explains Actively Managed ETF There’s no hard-and-fast rule as to whether an actively managed fund will under- or outperform a passive-ETF rival. Passive ETFs can at least be counted on to follow their indexes faithfully, which allows investors to know up front the holdings and risk profile of the fund. This helps to keep a diversified portfolio in line with expectations. Actively managed funds, however, have the freedom to trade outside of their benchmark indexes, which makes it more difficult for investors to anticipate the future makeup of the portfolio.
A promise or agreement to take some future action. For example, a promise by a buyer to purchase goods at a price set beforehand is an advance commitment. Taobiz explains Advance Commitment In financial markets, parties may make an advance commitment to sell an asset before they own it; the seller often buys a futures contract to offset the risk of a price increase at the time of purchase. In banking, a financial institution will make an advance commitment to a borrower to lend funds on a specified date on agreed-upon terms. Note that in mortgage banking an advance commitment is called a "standby commitment."
A term used to describe the adjustment made to a convertible securities' conversion factor when the exchangeable stock underlying the convertible undergoes a split. Taobiz explains Adjustment in Conversion Terms In some convertibles, an adjustment in conversion terms is a scheduled event. Otherwise, these adjustments are made in order to ensure that the holder of the convertible remains unaffected by any related changes. For example, if a convertible security CBC has an exchange privilege of 1 common for $50, and the common share of CBC splits 2 for 1, then the exchange ratio will be adjusted to 1 common for $25.
The amount of money owed by a customer to his/her broker after paper profits and losses are taken into consideration. Taobiz explains Adjusted Debit Balance This value is calculated by subtracting the accountholder's profits on short sales and balances in a special miscellaneous account. According to the SEC's Regulation T, withdrawals from margin accounts can only be made if there is a small adjusted debit balance.
A type of preferred stock where the dividends issued will vary with a benchmark, most often a T-bill rate. The value of the dividend from the preferred share is set by a predetermined formula to move with rates, and because of this flexibility preferred prices are often more stable then fixed-rate preferred stocks. Taobiz explains Adjustable-Rate Preferred Stock - ARPS The preferred category of stocks are more secure as they will be one of the first of the equity holders to receive dividend payments in the event of the company's liquidation. There is often a limit to the amount the rate can change on the dividend, adding further security to the issue.
Additional shares put on the market by a company that has already gone public. Reasons why a company might use add-on financing include raising cash to fund existing operations, expanding operations or paying for a new project. While an add-on is useful for raising money, it can cause the company's share price to decline, and current shareholders to be diluted. Taobiz explains Add-On From the existing shareholders' perspective, the issuance of add-on stock is a bad thing because it usually reduces the value of the stock they own. More shares mean that existing shareholders will see their percentage of ownership in the company decrease. They may also see the stock's earnings per share decline. However, if the add-on is able to increase earnings and shareholder value in the long-term, it will generally be viewed as a positive decision.
A technical indicator that helps investors identify possible market turning points. The adaptive price zone (APZ) can be especially useful in a sideways-moving market. This indicator attempts to signal significant price movements by using a a set of bands based on short-term, double-smoothed exponential moving averages. It can help day traders profit in volatile markets by signaling price reversal points, which can indicate potentially lucrative times to buy or sell. The APZ can be implemented as part of an automated trading system. Taobiz explains Adaptive Price Zone - APZ Technical analysis is one of two major methods for making stock-trading decisions. Whereas fundamental analysis looks at the value of the company behind the stock, technical analysis ignores this completely and focuses solely on price movements. Technical traders use charts and other tools to analyze a stock's price and trade volume and predict how a stock will move.
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