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GLOSSARY 283Internet. Using special software, Internet users can
enter chat areas or “virtual spaces,” where they can
communicate in real time (live).
Churning If a broker buys and sells securities in an
investment account at an excessive rate, it’s known
as churning. One indication that an account is being
churned is that paymentsin commissions exceed earn-
ings on investments. Churning is illegal but is often
hard to prove.
Day trader When investors buy and sell investments
within a very short time, sometimes as short as a few
minutes or perhaps a few hours, they are considered
day traders. The strategy is to take advantage of rapid
price changes to make money quickly. In the past, pro-
fessional investors did most of the day trading, but as
online trading has gained popularity, many more indi-
viduals, usually referred to as electronic day traders,
do it as well.
Decimalization The term decimalization denotes the
move by United States securities markets to quote
stock prices in hundredths (pennies) rather than
eighths of a dollar.
Demutualize In an effort to become more flexible and
better able to compete with ECNs and adapt to the de-
mands of globalization, traditional stock exchanges—
formed as mutual, not-for-profit associations—are
switching to a corporate, for-profit structure. Euro-
pean exchanges, facing competition fueled by mar-
ket and currency unification for two decades, were
quicker to adopt this transformation than American ex-
changes.
Digital divide The disparity in computer and Internet
access between rich and poor, ethnic minorities and
majority citizens, and developed and developing coun-
tries has been called the “digital divide.” It portends an
increasing gap between “haves” and “have-nots,” as the
latter are locked out of the benefits of access to online
information and services.
Discount broker Brokerages that offer securities trad-
ing at per trade commissions ($25–$35) moderately
lower than traditional, full-service brokers’ current
fees, which were originally charged per share traded.
Pioneered by the Charles Schwab Corporation in 1975,
they offer independent financial products and services
rather than actively managing clients’ investment port-
folios, and offering proprietary products and research.
“Deep discount brokers” generally charge $6–$15 per
trade.
Disintermediation In the early days of the commer-
cialization of the Internet, it was widely believed that
e-commerce would ultimately eliminate “middlemen”
from channels of distribution by offering more de-
sirable and more efficient direct distribution between
manufacturer or service provider and end user (con-
sumer).
Dot-com bubble The long bull market of the 1990s
led to theories of a “new economy.” Stock valuation
for start-up, usually unprofitable, Internet firms (“dot-
coms”) often exceeded that of long-established and
profitable “old economy” businesses in a classic invest-
ment “bubble.” By the first quarter of 2000, investors’
patience with red ink had worn thin and technologyand Internet-sector stocks fell dramatically, most fa-
mously on April 14.
EDGAR EDGAR stands for “Electronic Data, Gathering,
Analysis and Retrieval System,” and was launched by
the Securities & Exchange Commission (SEC) in 1984
to automate the submission and processing of financial
data filings. EDGAR Online offers clients Web-based
access to business, financial, and competitive informa-
tion disclosed in SEC filings throughout the year by
over 15,000 U.S. public companies.
Electronic Communications Network (ECN)An ECN
is an alternative securities trading system that collects,
displays, and executes orders electronically without a
middleman (such as a specialist or market maker).
Financial portal Financial portals are Web sites that
provide a single point of access to information,
databases, tools, and related Web pages that help con-
sumers manage their personal finances. Most now offer
both investing and banking content.
Floor broker Floor brokers are members of a stock or
commodities exchange who handle client orders that
are sent to the floor of the exchange from the trading
department or order room of the brokerage firms they
work for.
Full service broker A full-service brokerage partici-
pates in all aspects of the investment process, from rec-
ommending investment choices to executing the trans-
action, measuring results, and formulating follow-up
strategies. Discount brokers contend that there is an
inherent conflict of interest in the full-service brokers’
recommendations, as they derive revenue from trading
commissions.
Individual retirement account (I.R.A.) These tax-
deferred retirement accounts allow anyone who earns
income from work, or is married to someone who does,
to put up to $2,000 per year in an account and postpone
paying tax on any earnings.
Limit order When an investor gives a broker an order
to buy or sell a stock when it reaches a certain price
or better, it is called a limit order. For example, if an
investor places a limit order to buy a certain stock at
$25 a share when its current market price is $28, the
broker will not buy the stock until its share price is
at $25 or lower.
Liquidity If an investment can be converted easily and
quickly to cash, with little or no loss of value, it has
liquidity.
Margin Buying on margin is borrowing from a broker
to buy stocks. The margin is the value of the cash or
securities that the buyer must deposit as collateral in
a margin account. If the value of the margin account
drops below the maintenance requirement, the buyer
must, in most cases, add cash or securities to the ac-
count to bring its value back to the minimum.
Market maker A dealer in an electronic market, such as
the Nasdaq Stock Market (Nasdaq), who is prepared to
buy or sell a specific security—such as a bond or at least
one round lot of a stock—at its publicly quoted price
is called a market maker. Typically, there are several
market makers for each security. On the floor of an ex-
change, such as the New York Stock Exchange (NYSE),
however, the dealer who handles buying and selling a