Free Series 6 Glossary — 50 Terms in Plain English

The first 50 terms from our full Series 6 glossary, defined so a beginner actually gets them. Type to filter:

Accredited investor

An investor who meets a financial or status test: income over $200K individually (or $300K jointly) in each of the last two years with the same expected this year, net worth over $1 million excluding primary residence, or qualifying insider/license status. Only one criterion needs to be met.

Adjustable-rate preferred

Preferred stock whose dividend resets periodically based on a benchmark interest rate, so the payment floats instead of staying fixed.

Adjusted cost basis

The price paid for a position, modified by allowed adjustments, used to figure gain or loss. Sales proceeds minus cost basis equals the capital gain or loss.

Agency security

A debt security issued by a federal agency (Ginnie Mae) or a government-sponsored enterprise (Fannie Mae, Freddie Mac). Only Ginnie Mae, a true government agency, carries the full faith and credit of the U.S. government; the GSEs do not.

American Depositary Receipt (ADR)

A negotiable certificate trading in U.S. markets that represents shares of a foreign company held abroad. It lets U.S. investors own foreign equity in dollars, but they still face currency risk.

Best efforts underwriting

An underwriting where the investment banker acts only as agent, agreeing to sell what it can but taking no risk for unsold securities.

Bid and ask

The bid is the price a dealer pays to buy; the ask is the price it charges to sell. Customers sell at the bid and buy at the ask, and the gap between them is the spread.

Blue-sky laws

State securities laws that may require registration of securities and licensing within that state, on top of federal SEC rules.

Bond price volatility

How much a bond's price swings when interest rates change. Longer maturities and lower coupon rates make a bond more volatile.

Bond rating

A grade from an agency like Standard & Poor's or Moody's measuring the issuer's ability to repay. Higher ratings mean lower credit risk and usually lower yield.

Broker (agent)

A firm or person that arranges a trade between buyer and seller without owning the security, and earns a commission for the service.

Call option

An option giving the buyer the right to buy a security at a set strike price. Buyers are bullish; the seller (writer) has the obligation to sell if exercised.

Callable bond

A bond the issuer can redeem before maturity, usually when rates fall so it can refinance cheaper. The call feature benefits the issuer, so the bond compensates with a higher yield.

Callable preferred

Preferred stock the issuer can buy back at a set price after a certain date. Issuers tend to call when interest rates fall, so they can reissue at a lower dividend.

Capital appreciation

The increase in a security's market price above what you paid. The gain is only 'realized' (and taxable) when you actually sell.

Cash dividend

A cash payment, usually quarterly, that a corporation distributes to stockholders out of profits. Dividends are never guaranteed and must be declared by the board of directors.

Commercial paper

Short-term unsecured corporate debt maturing in 270 days or less, issued at a discount to fund near-term needs like payroll or inventory.

Common stock

Basic ownership shares with no fixed value, carrying voting rights and the potential for capital appreciation and dividends. On the exam, an unspecified 'stock' means common stock.

Convertible bond

A bond that can be exchanged for a fixed number of the issuer's common shares. It usually pays a lower coupon than a comparable nonconvertible bond in exchange for the conversion upside, and its price may track the underlying stock when that stock rises.

Convertible preferred

Preferred stock that can be exchanged for a set number of the issuer's common shares. It carries a lower stated dividend in exchange for the upside of converting if the common rises.

Cooling-off period

The minimum 20-day window after filing while the SEC reviews a registration statement. Securities may not be sold yet, though indications of interest can be gathered.

Cumulative preferred

Preferred stock where any skipped dividends pile up and must all be paid before common shareholders get anything. Trap: all arrears plus the current dividend are owed, not just one year.

Currency option

An option on a foreign currency used to speculate on or hedge exchange-rate moves. Mnemonic 'EPIC': Exporters buy Puts, Importers buy Calls.

Current yield

A security's annual income divided by its current market price, shown as a percentage. Watch for a dividend quoted quarterly that must be multiplied by four first.

Dealer (principal)

A firm that buys or sells securities from its own account and is compensated through a markup or markdown rather than a commission.

Debenture

An unsecured corporate bond backed only by the issuer's general credit and promise to pay, with no specific collateral behind it.

Debt security

A security representing a loan to the issuer that pays interest and returns principal at maturity. Bondholders are creditors, not owners, and get paid before stockholders.

Declaration date

The day a company's board votes to pay an upcoming dividend and announces its amount and key dates. It is the starting point for the four dividend dates.

Discount (bond)

A bond trading below its par value, which happens when interest rates rise above the bond's coupon. A bond bought at a discount has a current yield higher than its coupon rate.

Equity security

A security representing ownership in a company, such as common or preferred stock. Owners share in growth and dividends but are paid last if the company is liquidated.

Ex-dividend date

The first day a stock trades without the right to the upcoming dividend, set one business day before the record date. Trap: buy on or after this date and the seller, not you, keeps the dividend.

Exchange market

An auction market, such as the NYSE, where listed securities trade and companies must meet listing standards. Buyers and sellers are matched at a single agreed price.

Exempt security

A security freed from SEC registration because of its nature, such as U.S. government and municipal bonds. Trap: fixed insurance policies are exempt, but variable contracts are securities and are regulated.

Final prospectus

The completed disclosure document, including the offering price, that must be delivered when nonexempt securities are sold to the public.

FINRA

The Financial Industry Regulatory Authority, the largest self-regulatory organization, which oversees broker-dealers and the OTC market under SEC supervision.

Firm commitment underwriting

An underwriting where the investment banker acts as principal, buying the entire issue from the issuer and assuming the risk of any unsold shares.

Firm quote

A price at which a market maker is obligated to trade at least the standard amount, the default for any quote given. Trap: a 'nominal' or 'subject' quote is only informational and is not binding.

Form D

The brief notice filed electronically with the SEC for a Regulation D private placement. An amended Form D is filed to correct errors or reflect changed information.

Fourth market

Direct trading of large blocks of securities between institutions, typically through electronic networks, without using a broker-dealer as middleman.

General obligation (GO) bond

A municipal bond backed by the full taxing power of the issuing government, repaid from taxes. Because new taxes may be pledged, voter approval is often required.

Ginnie Mae (GNMA)

A U.S. government corporation within HUD that guarantees mortgage-backed pass-through securities. These carry the full faith and credit of the U.S. government, and investors usually receive monthly payments of both interest and principal.

Index option

An option based on a market index rather than a single stock, used to speculate on or hedge the broad market. Exercise settles in cash, not delivery of shares.

Interest-rate option

A yield-based option whose value tracks interest-rate movements. Yield-based options settle in cash and are European-style (exercisable only at expiration) — unlike standard equity options, which are American-style.

Interest-rate risk

The risk that a bond's market price falls when interest rates rise. Bond prices and interest rates always move in opposite (inverse) directions.

Issuer

The company, government, or municipality that creates and sells a security to raise money. The issuer receives the proceeds only in the primary market, not when shares later trade between investors.

Lettered (legend) stock

Restricted securities sold in a private placement, named for the investment letter the buyer signs and the legend on the certificate restricting resale without registration or exemption.

Liquidity (marketability)

How quickly a security can be sold for cash near its current value without a big price drop. Money market instruments and exchange-listed stocks are highly liquid; private placements and real estate are not.

Market maker

A broker-dealer that quotes both a buy and sell price and stands ready to trade a security from its own inventory, providing liquidity in the OTC market.

Money market instrument

A short-term debt security maturing in one year or less, such as T-bills, commercial paper, or jumbo CDs. Used for safety and liquidity rather than high return.

Municipal bond

Debt issued by a state or local government, generally paying interest that is exempt from federal income tax. Most appropriate for investors in high tax brackets seeking income, not growth.

The full glossary

Every term the Series 6 tests — organized by unit, exam traps flagged: