Knowledge Center

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Accrued Interest

Accrued interest is the interest that accumulates on a fixed-income security between one interest payment and the next. The amount is calculated by multiplying the coupon rate, also called the nominal interest rate, times the number of days since the previous interest payment.

Accumulation/Distribution Line

The Accumulation/Distribution Line is a technical indicator used to predict price movements and the sustainability of current trends. It's a volume indicator, which means it measures the number of shares traded over a given period. When the current close is higher than the close from the day before, volume is said to have accumulated and a new, higher, data point is created. Volume is said to have distributed when the current close is lower than the close from the day before, and a new, lower, data point is created. Positive and negative divergences are considered important. If prices are falling, but the Accumulation/Distribution Line is consistently rising, this is known as a positive divergence. Positive divergence could be a sign that prices will soon begin to rise. A negative divergence, which occurs when prices are rising but the indicator is simultaneously falling, could be a sign that the trend will reverse and that prices may soon begin to fall.

Active Management

The process of hand selecting securities with the purpose of trying to outperform a benchmark index. Active portfolio managers use economic data, investment research, market forecasts, and other indicators to help make investment decisions.

Actual 12b-1 Fee Ratio

The Actual 12b-1 Fee Ratio calculates the historical amount of distribution-related and/or shareholder servicing expenses paid by a fund over its latest fiscal year, which was paid pursuant to the fund's 12b-1 distribution plan.

Affidavit of Domicile

Document or written statement made by the executor of an estate that certifies the decedent's place of residence at the time of death. Before securities can be transferred from an estate, it must be verified that no liens exist against them in the home state of the decedent.

After Tax Return

The return from an investment after all income taxes have been accounted for and deducted. The SEC has adopted a number of rule and form amendments requiring mutual funds to disclose standardized after-tax returns. The amendments require a mutual fund to disclose standardized after-tax returns for 1-, 5-, and 10-year periods in the risk/return summary of the prospectus.

Alerts

Alerts are customizable notifications that you are able to set inside your Scottrade account to keep you informed about changes in your account or securities you have selected to track. The Alerts column on the Watch Lists table of your account home page will display a megaphone icon next to any symbol for which an alert is set to indicate that current news or price information is available for that security.

All-Or-None

A qualifier used to signify that no partial transaction is to be executed. The order will not be filled unless the full numbers of shares are available to be bought or sold at your requested price at the same time.

Alpha

A mathematical measurement of the amount of return expected from an investment. For example, an alpha of 1.20 indicates that a stock is projected to rise 20% in a year when the return on the market and stock's beta are both zero. Generally, a low priced investment in relation to its alpha is considered a good choice because of its undervalued status.

Alpha (Risk-Adjusted Performance)

Alpha is a mathematical measurement of the amount of return expected from an investment.

Alpha measures a fund's performance after adjusting for the fund's systematic risk as measured by the fund's beta with respect to the index. It is the difference between the average excess return on the fund and the average excess return on the levered or de-levered index portfolio. The usefulness of alpha is completely dependent on the accuracy of beta. If the investor accepts beta as a conclusive definition of risk, a positive alpha would be a conclusive indicator of good fund performance.

Alternative Minimum Tax

Federal tax aimed at ensuring the wealthy individuals, trusts, estates and corporations pay at least some income tax. There are separate calculations for individuals and corporations.

American Depositary Receipts

Receipt for the shares of a foreign-based company held in the vault of a U.S. bank. Shareholders of ADRs are entitled to receive all dividends and capital gains. Individuals that want to own a foreign company without buying it on an overseas market can purchase an ADR listed on U.S. exchanges.

American Style Option

A listed option that you can exercise at any point between the day you purchase it and its expiration date is called an American-style option. All equity options are American style, no matter where the exchange on which they trade is located. In contrast, you can exercise European-style options only on the last trading day before the expiration date, not before. Index options listed on various US exchanges may be either American- or European-style options.

Annual Percentage Yield

Annual Percentage Yield (APY) is the effective annual rate of return taking into account the effect of compounding interest. The quoted rate assumes that the funds will remain in the investment for a full year (365 days). While similar to an APR (Annual Percentage Rate) it allows you to standardize different types of rates into an annualized percentage rate number.

Annuity

Form of contract sold by life insurance companies that guarantees a fixed or variable payment to the annuitant at some future time, usually retirement.

Appreciation

Increase in value of an asset such as a stock, bond, commodity or real estate.

Arbitrage

Arbitrage occurs when an investor simultaneously buys and sells an asset in an attempt to benefit from an existing price difference on similar or identical securities. The arbitrage technique enables investors to self-regulate the market and aid in smoothing out price differences to ensure that securities continue to trade at a fair market value.

Ask

The ask price is the price at which a market maker or broker offers to sell a security or commodity. The price another market maker or broker is willing to pay for that security is called the bid price, and the difference between the two prices is called the spread. Bid and ask prices are typically reported to the media for commodities and over-the-counter (OTC) transactions.

Ask Size

The quantity of shares a seller is willing to sell at the current ask price is called the ask size.

Asset Allocation

Asset allocation refers to the way your investments are diversified across different asset classes, such as stocks, bonds and cash, to meet your goals given your risk tolerance, tax status and time horizon. Esentially, asset allocation means dividing your assets among different broad categories of investments, called asset classes.

Stock, bonds, and cash are examples of asset classes, as are real estate and derivatives such as options and futures contracts. Most financial services firms suggest particular asset allocations for specific groups of clients and fine-tune those allocations for individual investors.

The asset allocation model -- specifically the percentages of your investment principal allocated to each investment category you're using -- that's appropriate for you at any given time depends on many factors, such as the goals you're investing to achieve, how much time you have to invest, your tolerance for risk, the direction of interest rates, and the market outlook. Scottrade offers five pre-defined asset allocation models, called target models, that you can use as a framework for structuring your portfolio. Our target models can be found when you log in to your account, go to the My Account tab and choose Portfolio Review Tool from the left menu.

Ideally, you adjust or rebalance your portfolio from time to time to bring the allocation back in line with the model you've selected. Or, you might realign your model as your financial goals, your time frame, or the market situation changes.

Asset Allocation Breakdown

The process of dividing investments among different kinds of asset categories, such as stocks, bonds, real estate and cash, is called asset allocation breakdown. Asset allocation breakdown is a key concept in financial planning and money management that can be used to optimize the risk/reward tradeoff based on an individual's or institution's specific situation and goals.

Asset Class

Refers to the categorization of an asset. Representative asset classes include equities, bonds, commodities, etc.

Assign

The act of designating option contract holders to deliver underlying assets upon exercise of an option contract. If you sold a call and it was exercised, you must deliver the shares to your brokerage firm. The Options Clearing Corporation (OCC) randomly assigns exercised calls to brokerage firms, and the firm that receives an assignment assigns it in turn to a client who has sold the contract in question. That client must meet the call.

At-the-Money

At-the-money is another way of saying "at the current price". Options whose exercise price is the same or almost the same as the current market price of the underlying stock or futures contract are considered At-the-money.

Authorized Participants

This term refers to large financial institutions, such as specialist firms and market makers, which are involved in the creation and redemption activity of exchange-traded funds.

Automatic Reinvestment

Mutual fund term used to describe a fund service giving shareholders the option to purchase additional shares using dividends and capital gain distributions.

Average Directional Movement Index

The Average Directional Movement Index (ADX) is a technical indicator used to measure the strength of a price trend. The indicator doesn't show what direction the trend is moving, but rather how strong it is. The ADX fluctuates between the values 0 and 100. Ratings below 20 denote a weak trend and anything over 40 represents a strong trend. Readings above 60 are relatively rare.

Average Directional Movement Index Rating

In technical analysis, the Average Directional Movement Index Rating (ADXR) measures the strength of the Average Directional Movement Index (ADX). Similar to the ADX, the ADXR moves between values of 0 to 100 and shows the strength of a current price trend.

The information and content provided in the Scottrade® Knowledge Center is for informational and/or educational purposes only. The information presented or discussed is not, and should not be considered, a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances and your investment objectives. Scottrade, Inc. and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy.