Brokerage terms & definitions

The ask is the lowest price at which the market is willing to sell a single share at the moment the quote is obtained.

The bid is the highest price at which the market is willing to pay for a single share at the moment the quote is obtained.

Bonds are debt instruments issued by a corporation, government, or municipality to raise money. Bonds are issued with the promise that the bondholder will be repaid principal with or without interest at the end of a specified period of time.

Debt issues can have maturities ranging from one month to thirty years or more. Some bonds are secured by collateral such as revenue or physical assets. Some are unsecured and are backed only by the creditworthiness of the issuing corporation or government entity. All debt securities are issued with a fixed face amount (known as par value); however, they may trade at a discount or a premium to par.

Investments in fixed income products are subject to liquidity (market) risk, interest rate risk, financial risk, inflation risk and special tax liabilities. Bonds tend to decline in value when interest rates rise and increase in value when interest rates fall.

A call option contract gives the holder the right to buy shares of the underlying security from the writer (seller) at a fixed price (strike price). Normally, one contract equals 100 shares.

If a call is purchased, an investor is buying a contract that gives them the right to buy shares (typically 100) of a specific stock at a strike price, any time prior to the expiration date. The expiration date is determined by the expiration month of the option you buy.

Late sale or cash/trade liquidations occurs when you buy a security without enough funds to cover the purchase and sell another, at a later date, in a cash account. The settlement of the buy and the subsequent sell don't match, which is a violation. This is also known as a "late sale." Industry rules require you to have sufficient settled cash in you account to cover purchases on settlement date.

Example: On Monday, you buy stock X. To pay for stock X, you sell stock Y on Tuesday or later. Each trade settles in 2 business days, so you'll be late paying for stock X.

Penalty: Any 3 violations in a rolling 52-week period trigger a 90-day funds-on-hand restriction. During this time, you must have settled funds available before you can make a purchase.

Cost basis is the original value of an investment for tax purposes. Cost basis is typically the purchase price plus reinvested dividends and return of capital distributions. Cost basis may be adjusted for stock splits and corporate actions.

In 2008, Congress passed legislation which requires brokers to report cost basis for securities and mutual funds to both the investor and the IRS, effective tax year 2011. A covered security is the designation for an investment under which the cost basis is required to be reported by the broker through Form 1099-B, as the investment was purchased after to the effective date of the legislation.

A dividend is a portion of a company's profit distributed to shareholders on a per share basis. Companies offer dividends to attract investors and reward them for stock ownership - thus sharing in profits. Dividends are usually offered by larger businesses and can be paid in shares or cash at the company's discretion. Some firms allow the dividend to be reinvested, thus purchasing additional shares and a larger stake of the company.

Exchange-Traded Funds (ETF) are similar to a mutual fund in that they invest in a variety of securities that may include stocks, bonds, commodities, and currencies and may track a specific sector, country or a market index. However, ETFs are listed on an exchange and can be traded throughout the day similar to stocks.

Investors can buy or sell shares in the collective performance of an entire stock or bond portfolio as a single security. Exchange traded funds add the flexibility, ease, and liquidity of stock trading to the benefits of traditional index fund investing.

Freeriding occurs when you buy and sell securities in a cash account without covering the initial purchase. An investor with a cash account must pay for the purchase in full.

Example: You have $2,000 in your cash sweep. You purchase a stock for $3,000. Later that day, you sell the stock for $3,500 without ever paying for the initial $3,000 purchase.

Penalty: If you incur one free riding violation, your account is restricted for 90 days. During this time, you must have settled funds available before you can make a purchase.

Unsettled trades liquidations or good faith violation occurs when you buy a security in a cash account using sales proceeds that haven't yet settled. Then you sell the recently purchased security before the settlement of the initial sale. Only cash or sales proceeds of fully paid for securities qualify as "settled funds". Selling a security before it was ever paid for with settled funds is considered a "good faith violation" because no good faith effort was made to deposit additional funds into the account prior to settlement.

Example: You have a zero balance in your cash sweep and no pending credits or sales proceeds. On Tuesday, you sell stock A. Settlement (day the cash proceeds will arrive in your account) is on Thursday (the second day after the trade was placed).

On Wednesday, you buy stock B. You must pay for it on Friday (the second day after the trade was placed). But on Wednesday, you decide to sell stock B. Because the sale of stock A hasn't settled, you paid for stock B with unsettled funds.

Penalty: Any 3 violations in a rolling 52-week period trigger a 90-day funds-on-hand restriction. During this time, you must have settled funds available before you can make a purchase.

A Good for 90 days (GTC) order is an order that expires at the end of 90 calendar days, if it is not filled or canceled.

A Good for the day (GTD) order is an order that expires at the end of the day, if it is not filled.

An Initial Public Offering (IPO) is a company's first sale of stock to the public; which occurs before the stock trades publicly on an exchange. IPOs are typically offered by young, smaller companies looking for capital to expand, but large private companies may also issue IPOs when they want to go public. IPOs can be risky because of the uncertainty related to initial trading activity and future performance.

A limit order specifies the price at which you would like to buy or sell a security. Unlike a market order, your purchase or sale will only occur when the security hits your set price. For example, you want to buy 10 shares of ABC stock at $10 per share. ABC is currently selling at $12 per share. Once the stock trades at $10, we’ll execute your limit order.

Margin allows the use of the value of the securities held within the account as collateral when borrowing to purchase additional securities or for "loans". Interest is charged to the account, while there is an outstanding margin balance. Minimum requirements apply to the amount of margin versus the outstanding margin balance. Margin is an optional feature available to qualified non-retirement accounts. Limitations apply.

A market order is executed at the best available price after you place the order. The price could be higher or lower than the price listed when you place the order.

A mutual fund is an investment managed by an investment company that pools money from many people and/or institutions (shareholders) to invest in a variety of different securities; including stocks, bonds, commodities, currencies, etc. The fund is managed in accordance with the objectives stated in the mutual fund's prospectus. When you invest in a mutual fund, you buy shares of the overall pool of investments held within the fund and become a shareholder of the fund. Before investing in a mutual fund, you should read the prospectus and consider the investment objectives, risks, charges and expenses. A copy of a fund prospectus can be obtained within our Mutual Fund Research tools online.

No Transaction Fee (NTF) mutual funds are no-load mutual funds for which TIAA Brokerage does not charge a transaction fee or sales charge, minimums apply. We can offer these funds without a transaction fee because participating fund companies pay our clearing firm for record-keeping and shareholder services, as well as other administrative services. Before investing in a mutual fund, you should read the prospectus and consider the investment objectives, risks, charges and expenses.

In 2008, Congress passed legislation which requires brokers to report cost basis for securities and mutual funds to both the investor and the IRS, effective tax year 2011. A non-covered security is the designation for an investment under which the cost basis is not required to be reported to the IRS by the broker, as the investment was purchased prior to the effective date of the legislation. When filing taxes, the tax payer may need to provide any needed cost basis information to the IRS.

Options are contracts that give the buyer the right to purchase or sell a specific security at a specific price during a specific time period. The contract is an obligation of the seller to meet the terms of delivery if the contract right is exercised by the buyer. The two types of options contracts are calls and puts, which give the seller/buyer the right to sell or buy respectively.

Options are not suitable for all investors, as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. If you desire more information or wish to apply for options tradingOpens pdf, please contact TIAA Brokerage at 800-842-2252, Monday - Friday: 8 am - 7 pm (ET).

Over-the-counter (OTC) is a reference to buying a stock via the Over-the-counter Bulletin Board (OTCBB); which is a quotation service regulated by the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC).

A penny stock is a stock that typically sells for less than $5 a share. Penny stocks are generally considered high risk investments due to low trading volumes, unpredictability, and lack of listing requirements. Stocks that trade on the Pink Sheets and Over-the-counter Bulletin Board (OTCBB) are two common types of penny stocks.

Pershing acts as a clearing house for TIAA Brokerage. They work behind the scenes to provide record keeping and clear trades. You will see their name on your statements, trade confirmations and other notices about your account.

A put option is a contract giving the holder the right, but not the obligation, to sell a specified amount of an underlying security at a specified price (strike price) within a specified time period. Normally, one contract equals 100 shares. This is the opposite of a call option, which gives the holder the right to buy shares. The put option holder may choose to exercise the option (sell the stock at the strike price), sell the option to someone else, or let the option expire (do nothing).

TIAA Brokerage provides security data, including quotes, through the use of multiple sources. Each source requests certain disclosures and use policies to be provided to you in advance of receiving real-time quotes and other performance data. The real-time quotes agreement is our method of obtaining your consent to agree to the terms and conditions of use, prior to providing the real-time data information. If you would prefer to decline acceptance of the agreements, delayed quotes (delayed by 15 mins) are available.

Reich & Tang Deposits Networks, LLC. (also known as Reich & Tang) is a firm that specializes in FDIC insured deposit investment and funding programs. Reich & Tang manages a portion of the FDIC insured brokerage cash sweep product that is the default cash sweep for the majority of our brokerage accounts.

The Securities Investor Protection Corporation (SIPC) is a nonprofit corporation established by Congress under the Securities Investor Protection Act of 1970. SIPC protects or covers up to $500,000 per account, including up to $250,000 in cash of member brokerage firms against the failure of those firms. All brokers and dealers registered with the Securities and Exchange Commission and with the national stock exchanges are required to be members of SIPC. SIPC does not protect the value of an investment from market risk. Learn more about SIPC (http://www.sipc.com/).

Stocks represent ownership (or equity) in a publicly traded corporation. A share gives the owner a stake in the company's assets and earnings, including the ability to vote on some company decisions.

A stock split is a corporate action in which a company's existing shares are divided into multiple shares. Although the number of shares outstanding increases by a specific multiple, the total dollar value of shares owned remains the same as the pre-split amount, because no real value has been added as a result of the split.

A stop order is the purchase or sale of a security when it reaches a certain price. For example, you own 10 shares of ABC stock at $10 per share. You don't want to take a big loss if the market goes down, so you set a stop order of $8 per share. If the stock decreases to $8, the stop order is triggered and we'll automatically place a market order to sell your shares. Keep in mind that the price may continue to change once we execute the market order, so you may receive more or less than $8 per share.

A stop limit order is a combination of a limit order and a stop order. You set a stop price and a limit price - which is the price range you're willing to buy or sell a security. For example, you're interested in buying ABC stock, which is trading at $20 per share. You set a stop limit order to buy with a stop price of $15 and a limit price of $17. If ABC hits $15, your order is executed and turns into a limit order. Your order is filled as long as the price stays below $17 (the limit price). If the price increases above $17,the order will not be filled.

Volatility is a measure of stock price fluctuation. Mathematically, volatility is the annualized standard deviation of a stock's daily price changes.

The wash sale rule prohibits selling a security at a loss and buying that same security or a "substantially identical" security 30 days before or after the date of the sale. If a wash sale has occurred, the IRS will not allow you to write off the loss which may increase your overall tax liabilities. Wash sale activities are reflected on your tax document and transaction confirmations. Consult your tax advisor for any questions pertaining to wash sale rules.

A watchlist is a list of investments you wish to monitor closely. These could be investments you currently own in your account. A watchlist can also be used to create a hypothetical portfolio; to "watch" investments that without actually owning them. You are able to choose the investments and parameters for email notification. You can set up watchlists by selecting watchlist from the Research tab within your account.