P1:a/b P2:c/d QC:e/f T1:g
gloss JWBK182-McDowell April 25, 2008 16:35 Printer: Yet to come
186 GLOSSARYexchange traded fund (ETF) A security that tracks a specific index, equity cate-
gory, or other basket of assets but is traded on an exchange like a single stock.
exercise an option To buy or sell a call or put option by the expiration date on
the options contract.
exit The point at which you close your trade or investment. This is the opposite
of your entry. It can also be known as yourstop-loss exit. It is a crucial part of your
money management risk control plan. The distance between your entry and your
exit will determine what your trade size will be.
expiration date The last day on which an option may be exercised. For stock
options, this date is the third Friday of the expiration month.
false breakout A short-lived price move that penetrates a prior high or low be-
fore succumbing to a pronounced price move in the opposite direction. For ex-
ample, if the price of a stock that has traded between $18 and $20 then rises
to $21 and then quickly falls below $18, the move to $21 can be termed a false
breakout.
Federal Open Market Committee (FOMC) A 12-member committee responsible
for setting credit and interest rate policy for the Federal Reserve System. They set
the discount rate directly and control the federal funds rate by buying and selling
government securities impacting the rate. They meet eight times a year under the
direction of a chairman.
Federal Reserve board of governors The governing arm of the Federal Reserve
System, which seeks to regulate the economy through the implementation of mon-
etary policy. The seven members of the board of governors are appointed by U.S.
presidents to serve 14-year terms.
Federal Reserve System (Fed) The United States central banking system, respon-
sible for regulating the flow of money and credit. It serves as a bank for other banks
and the U.S. government.
Fibonacci retracements The concept that retracements of prior trends will often
approximate 38.2 percent and 61.8 percent—numbers derived from the Fibonacci
sequence.
Fibonacci sequence A sequence of numbers that begins with 1,1 and progresses
to infinity, with each number in the sequence equal to the sum of the preceding
two numbers. Thus, the initial numbers in the sequence would be 1, 1, 2, 3, 5, 8,
13, 21, 34, 55, 89, etc. The ratio of consecutive numbers in the sequence converges
to 0.618 as the numbers get larger. The ratio of alternate numbers in the sequence
(for example, 21 and 55) converges to 0.382 as the numbers get larger. These two
ratios—0.618 and 0.382—are commonly used to project retracements of prior price
swings.
fill The price at which an order is executed is considered a fill. For example, if a
trade was placed at $32.00 and filled at $32.25 the fill price would be $32.25.