CHAPTER III. SOME TERMS EXPLAINED

There are certain terms used in connection with stock speculation that are very familiar to those who come in contact with stock brokers, and yet are not always familiar to those who do business by mail. Undoubtedly the majority of our readers are familiar with these terms, but we give these definitions for the benefit of the few who are not familiar with them.

Trader: A person who buys and sells stocks is usually referred to as a trader. The word probably originated when it was customary to trade one stock for another and later was used to refer to a person who sold one stock and bought another. He was a trader; but the person who buys stocks for a profit and sells them and takes his profit when he gets an opportunity, may not be a trader in the strict sense of the word. However, for convenience, we use the word "trader" in this book to refer to any one who buys or sells stocks.

Speculator: This word refers to a person who buys stocks for profit, with the expectation of selling at a higher price, without reference to the earnings of the stock. He may sell first, with the expectation of buying at a lower price, as explained in Chapter XVII. on "Short Selling." In many cases where we use the word "trader," it would be more correct to use the word "speculator."

Investor: An investor differs from a speculator in the fact that he buys stocks or bonds with the expectation of holding them for some time for the income to be derived from them, without reference to their speculative possibilities. We believe that investors always should give some consideration to the speculative possibilities of their purchases. It frequently is possible to get speculative profits without increase of risk or loss of income.

Bull: One who believes that the market price of stocks will advance is called a bull. Of course, it is possible to be a bull in one stock and a bear in another. The word is used very frequently with reference to the market, a bull market meaning a rising market.

Bear: The opposite of a bull is a bear. It refers to a person who believes that the market value of stocks will decline, and a bear market is a declining market.

Lambs: "Lambs" refers to that part of the public that knows so little about stock speculating that they lose all their money sooner or later. The bulls and bears get them going and coming. If the lambs would read this book carefully, they would discover reasons why they lose their money.

Long and Short: Those who own stocks are said to be long, and those who owe stocks are said to be short. Short selling is explained in Chapter XVII.

Odd Lot: Stocks on exchanges are sold in certain lots. On the New York Stock Exchange, 100 shares is a lot; and on the Consolidated Stock Exchange, 10 shares is a lot. Less than these amounts is an odd lot. When you sell an odd lot you usually get 1⁄8 less than the market price; and when you buy an odd lot, you usually pay 1⁄8 more than the market price; that is, 1⁄8 of a dollar on each share where prices are quoted in dollars.

Point: It is a common expression to say that a stock went up or down a point, which means a dollar in a stock that is quoted in dollars, but a cent in a stock that is quoted in cents, as many of the stocks are on the New York Curb. In cotton quotations, a point is 1⁄100 part of a cent. For instance, if cotton is quoted at 18.12, it means 18 cents and 12⁄100 of a cent per pound, and if it went up 30 points the quotation would be 18.42.

Reaction: Every person who has traded in listed stocks probably is familiar with this word. It means to act in an opposite direction, but it is used especially to refer to a decline in the price of a stock that has been going up.

Rally: "Rally" is the opposite of the sense in which "reaction" usually is used. When a stock is going down and it turns and goes up, it is called a rally.

Commitment: This term is used referring to a purchase of stock. It is more commonly used by investment bankers when they contract to buy an issue, but the term sometimes is used by traders.

Floating Supply: The stock of a company that is in the hands of that part of the public who is likely to sell, is referred to as floating supply.