Glossary

Face value, or par value, is the dollar value of a bond or note, generally $1,000.

That is the amount the issuer has borrowed, usually the amount you pay to buy the bond at the time it is issued, and the amount you are repaid at maturity, provided the issuer doesn't default.

However, bonds may trade at a discount, which is less than face value, or at a premium, which is more than face value, in the secondary market. That's the bond's market value, and it changes regularly, based on supply and demand.

The death benefit of a life insurance policy which is the amount the beneficiary receives when the insured person dies. It's also known as the policy's face value.

Designed to help consumers check their credit reports for accuracy and detect identity theft early, the FACT Act gives every consumer the right to request a free report from each of the three major credit bureaus -- Equifax, Experian, and TransUnion -- once a year.

To obtain your free reports, you must request them through the Annual Credit Report Request Service (www.annualcreditreport.com or 877-322-8228).

If you request your credit report directly from one of the three credit reporting agencies or through another service, you'll pay a fee.

Most experts recommend staggering your requests for the free reports -- for instance, ordering one in January, the second in May, and the third in September -- so that you can keep an eye on your credit throughout the year.

It's also a good idea to check your report at least two months before you anticipate applying for a major loan or a job, so you can notify the credit bureau if you find any inaccuracies.

You're also entitled to a free report directly from the credit reporting bureaus if you've recently been denied credit, have been turned down for a job, are on public assistance, or have reason to suspect that you're a victim of credit fraud or identity theft.

The Fair Housing Act makes it illegal to discriminate, in any phase of selling or renting real estate, against anyone on the basis of race, color, religion, sex, handicap, family status, or national origin.

However, there are exceptions for religious organizations and private clubs if those organizations are providing rooms for the convenience of their members on a noncommercial basis.

If you feel you are the victim of housing discrimination, you can file a complaint with the US Department of Housing and Urban Development (HUD) or file a suit in federal or state court.

Fair market value is the price you would have to pay to buy a particular asset or service on the open market.

The concept of fair market value assumes that both buyer and seller are reasonably well informed of market conditions. It also assumes that neither is under undue pressure to buy or sell, and that neither intends to defraud the other.

Corporate or municipal bonds that were investment-grade when they were issued but have been downgraded are called fallen angels. Bonds are downgraded by a rating service, such as Moody's Investors Service or Standard & Poor's (S&P).

Down-grading may occur if the issuer's financial situation weakens, or if the rating service anticipates financial problems that could lead to default.

The term fallen angel is sometimes used more generically, to refer to stocks or other securities that are out of favor with investors.

Many large mutual fund companies offer a variety of stock, bond, and money market funds with different investment strategies and objectives. Together, these funds make up a family of funds.

If you own one fund in a family, you can usually transfer assets to another fund in the same family without sales charges. The transaction is known as an exchange.

But unless the funds are in a tax-deferred or tax-free retirement or education savings plan, you'll owe capital gains taxes on increases in value of the fund you're selling.

Investing in a family of funds can make diversification and asset allocation easier, provided there are funds within the family that meet your investment criteria. Investing in a family of funds can also simplify recordkeeping.

However, the advantages of consolidating your assets within one fund family are being challenged by the proliferation of fund networks. Fund networks, sometimes called fund supermarkets, make it easy to spread your investments among several fund families.

Fannie Mae has a dual role in the US mortgage market.

Specifically, the corporation buys mortgages that meet its standards from mortgage lenders around the country. It then packages those loans as debt securities, which it offers for sale, providing the investment marketplace with interest-paying bonds.

The money Fannie Mae raises by selling these bonds pays for purchasing more mortgages. Lenders use the money they realize from selling mortgages to Fannie Mae to make additional loans, making it possible for more potential homeowners to borrow at affordable rates.

Because lenders want to ensure their mortgage loans are eligible for purchase, most adopt Fannie Mae guidelines in evaluating mortgage applicants.

Fannie Mae is described as a quasi-government agency because of its special relationship with the federal government. It's also a shareholder-owned corporation whose shares trade on the New York Stock Exchange (NYSE).

A fast market is one with heavy trading and rapidly changing prices in some but not necessarily all of the securities listed on an exchange or market.

In this volatile environment, which might be triggered by events such as an initial public offering (IPO) that attracts an unusually high level of attention or an unexpectedly negative earnings report, the rush of business may substantially delay execution times.

The probable result is that you end up paying much more or selling for much less than you anticipated if you gave a market or stop order.

While choosing not to trade in a fast market is one way to reduce your risk, you might also protect yourself while seeking potential profit by giving your broker limit or stop-limit orders. That way, you have the possibility of buying or selling within a price range that's acceptable to you, but are less exposed to the frenzy of the marketplace.

The term fast market is also used to describe a marketplace -- typically an electronic one -- where trades are executed rapidly.

The Federal Deposit Insurance Corportion (FDIC) insures deposits in banks and thrift institutions, assuring bank customers that their savings and checking accounts are safe.

Currently, the coverage limits are $100,000 per depositor per bank for individual, joint, and trust accounts, and $250,000 for self-directed retirement accounts. Business accounts are also insured up to $100,000.

You qualify for more than $100,000 coverage at a single bank, provided your assets are in these different types of accounts.

For example, you are insured for up to a total of $100,000 in all accounts registered in your own name and for another $100,000 representing your share of jointly held accounts. In addition, your individual retirement account (IRA) is insured up to $250,000 if the money is invested in bank products, such as certificates of deposit (CDs).

However, if you purchase mutual funds, annuities, or other investment products through your bank, those assets are not insured by the FDIC even if they carry the bank name.

The FDIC, which is an independent agency of the federal government, also regulates more than 5,000 state chartered banks that are not members of the Federal Reserve System.

When banks have more cash than they're required to in their reserve accounts, they can deposit the money in a Federal Reserve bank or lend it to another bank overnight.

That money is called federal funds, and the interest rate at which the banks lend to each other is called the federal funds rate.

The term also describes money the Federal Reserve uses to buy government securities when it wants to take money out of circulation. It might do this to tighten the money supply in the hope of forestalling an increase in inflation.

The Federal Housing Administration (FHA) was established by the federal government in 1937 to make home ownership possible for more people and to administer the home loan insurance program. It was consolidated into the Department of Housing and Urban Development (HUD) in 1965.

Among its other responsibilities, the FHA sets credit standards and loan limits, monitors loan quality and availability, and insures lenders against mortgage losses. That insurance, for which borrowers pay a mortgage insurance premium, encourages qualifying lenders to make FHA loans.

Federal Housing Administration (FHA) mortgages, which are offered by private lenders, resemble conventional mortgages in many ways, but there are some significant differences.

An FHA mortgage is government insured, so lenders are protected against default. That insurance, for which borrowers pay a mortgage insurance premium, encourages qualifying lenders to make FHA loans.

The buyer's closing costs are limited and the required down payment is lower. There is a price ceiling on the amount a homebuyer can borrow with an FHA mortgage, based on the state and county where the property is located.

Furthermore, people who may not qualify for a conventional mortgage because of previous credit problems may qualify for an FHA loan.

These mortgages are assumable, which means a new buyer can take over the payments without having to secure a new loan.

The Federal Insurance Contribution Act (FICA) is the federal law that requires employers to withhold 6.2% from their employees' paychecks, up to an annual earnings cap.

Employers must match employee withholding and deposit the combined amount in designated government accounts.

These taxes provide a variety of benefits to qualifying workers and their families through the program known as Social Security. Retirement income is the largest benefit that FICA withholding supports, but the money also funds disability insurance and survivor benefits.

Under this act, an additional 1.45% is withheld, and matched by the employer, to pay for Medicare, which provides health insurance for qualifying disabled workers and people 65 and older. There's no earnings cap for this tax.

If you're self-employed, you pay FICA taxes as both employer and employee, or 15.3%.

The Open Market Committee (FOMC) of the Federal Reserve Board meets eight times a year to evaluate the threat of inflation or recession.

Based on its findings, the 12-member FOMC determines whether to change the discount rate or alter the money supply to curb or stimulate economic growth.

For example, the FOMC may raise the discount rate, which the Federal Reserve charges member banks to borrow, with the goal of tightening credit and limiting inflationary growth. It may lower rates to encourage borrowing and economic expansion. Or it may take no action.

Changes in the discount rate result in virtually immediate changes in the short-term rates that banks charge consumers -- and each other -- to borrow.

The Federal Reserve Bank of New York implements FOMC decisions to alter the money supply. It buys government securities to put more money into circulation and loosen credit or it sells securities to take money out of the market and tighten credit.

Fedwire is an electronic transfer system owned and operated by the 12 Federal Reserve Banks that enables participants to move money from an account they maintain with the Federal Reserve to the account of another participant in real time during operating hours.

The payments are final and irrevocable, either when the amount is credited to the recipient's account or when the payment order is sent to the participant, whichever occurs first.

Fedwire, which operates on the Federal Reserve's national communications network (FEDNET), connects the Federal Reserve Banks, their branches, the US Department of the Treasury, banks that are members of the Federal Reserve and those that aren't, and branches or agencies of banks based abroad.

The system is used both to handle internal banking business, such as shifting balances to reflect money transferred by check, and to facilitate commercial transactions between bank clients.

The Federal Reserve System, sometimes known as the Fed, is the central bank of the United States.

The Federal Reserve System, which was established in 1913 to stabilize the country's financial system, includes 12 regional Federal Reserve banks, 25 Federal Reserve branch banks, all national banks, and some state banks. Member banks must meet the Fed's financial standards.

Under the direction of a chairman, a seven-member Federal Reserve Board oversees the system and determines national monetary policy. Its goal is to keep the economy healthy and its currency stable.

The Fed's Open Market Committee (FOMC) sets the discount rate and establishes credit policies. The Federal Reserve Bank of New York puts those policies into action by buying and selling government securities.

When you're covered by fee-for-service health insurance, you pay your medical bills and file a claim for reimbursement from your insurance company.

Most fee-for-service plans pay a percentage -- often 70% to 80% -- of the amount they allow for each office visit or medical treatment. You pay the balance of the approved charge plus any amount that exceeds the approved charge.

Your share of the approved charge is called coinsurance.

If you are enrolled in Original Medicare, which is a fee-for-service plan, your healthcare provider will file the insurance claim on your behalf.

Created by the Fair Isaac Corporation, FICO is the best-known credit scoring system in the United States.

Based on the information in your credit report, your FICO score is calculated using complex, proprietary formulas that weigh the amount of debt you carry relative to your available credit, the timeliness of your payments, the type of debt you carry, and a great many other factors to assign you a credit score between 300 and 850.

The top 20% of credit profiles receive a score over 780 and the lowest 20% receive scores under 620. Lenders use your credit score to assess your credit risk, or the likelihood that you will default on a loan and offer the best -- or lowest -- interest rates to credit applicants with the highest scores.

The Equal Credit Opportunity Act (ECOA) prohibits factors such as race, color, gender, religion, national origin, or marital status from being considered in any credit scoring system, including FICO.

A fiduciary is an individual or organization legally responsible for managing assets on behalf of someone else, usually called the beneficiary. The assets must be managed in the best interests of the beneficiary, not for the personal gain of the fiduciary.

However, the concept of acting responsibly can be broadly interpreted, and may mean preserving principal to some fiduciaries and producing reasonable growth to others.

Executors, trustees, guardians, and agents with powers of attorney are examples of individuals with fiduciary responsibility. Firms known as registered investment advisers (RIAs) are also fiduciaries.

If an investor places an FOK order, it means the broker must cancel the order if it can't be filled immediately.

This type of order is typically used as part of a trading strategy requiring a series of transactions to occur simultaneously.

The finance charge, or total dollar amount you pay to borrow, includes the interest you pay plus any fees for arranging the loan.

A finance charge is expressed as an annual percentage rate (APR) of the amount you owe, which allows you to compare the costs of different loans.

The Truth-in-Lending Law requires your lender to disclose the APR you'll be paying and the way it is calculated before you agree to the terms of the loan.

The Financial Accounting Standards Board (FASB) is an independent, self-regulatory board that establishes and interprets generally accepted accounting principles (GAAP).

It operates under the principle that the economy and the financial services industry work smoothly when credible, concise, and clear financial information is available.

FASB periodically revises its rules to make sure corporations are following its principles. The corporations are supposed to fully account for different kinds of income, avoid shifting income from one period to another, and properly categorize their income.

When a futures contract is linked to a financial product, such as a stock index, Treasury notes, or a currency, the contract is described as a financial future.

In most cases, the hedgers who use financial futures contracts are banks and other financial institutions that want to protect their portfolios against sudden changes in value.

The changing prices of a financial futures contract reflect the perception that investors have of what may happen to the market value of the underlying instrument.

For example, the price of a contract on Treasury notes changes in anticipation of a change in interest rates. Expected increases in the rate produce falling contract prices, while anticipated drops in the rate produce rising contract prices.

Any institution that collects money and puts it into assets such as stocks, bonds, bank deposits, or loans is considered a financial institution. There are two types of financial institutions: depository institutions and nondepository institutions.

Depository institutions, such as banks and credit unions, pay you interest on your deposits and use the deposits to make loans. Nondepository institutions, such as insurance companies, brokerage firms, and mutual fund companies, sell financial products.

Many financial institutions provide both depository and nondepository services.

A financial instrument is a physical or electronic document that has intrinsic monetary value or transfers value. For example, cash is a financial instrument, as is a check.

Listed and unlisted securities, loans, insurance policies, interests in a partnership, and precious metals are also financial instruments. A contractual obligation is also a financial instrument as is a deed that records home ownership.

A financial plan is a document that describes your current financial status, your financial goals and when you want to achieve them, and strategies to meet those goals.

You can use your plan as a benchmark to measure the progress you're making and update your plan as your goals and time frame change.

Financial planners and other investment professionals can help you create a plan, identify appropriate investments and insurance, and monitor your portfolio. You may pay a one-time fee to have a plan created, or it may be included as part of a fee-based account with a stockbroker or investment adviser.

A financial planner evaluates your personal finances and helps you develop a financial plan to meet both your immediate needs and your long-term goals. Some, but not all, planners have credentials from professional organizations.

Some well-known credentials are Certified Financial Planner (CFP), Chartered Financial Consultant (ChFC), Certified Investment Management Analyst (CIMA), and Personal Financial Specialist (PFS).

A PFS is a Certified Public Accountant (CPA) who has passed an exam on financial planning. Some planners are also licensed to sell certain investment or insurance products.

Fee-only financial planners charge by the hour or collect a flat fee for a specific service, but don't sell products or earn sales commissions. Other planners don't charge a fee but earn commissions on the products they sell to you. Still others both charge fees and earn commissions but may offset their fees by the amount of commission they earn.

Many investors structure their portfolios in the form of a financial pyramid. The base of the pyramid is made up of nonvolatile, liquid assets.

The next level includes securities that provide both income and long-term capital growth. At the third level, a smaller portion of the portfolio is allocated to more volatile investments with higher potential returns and greater risk.

And at the top level, the smallest percentage of the overall portfolio is invested in ventures that have the highest potential return but also pose the greatest investment risk.

This strategic approach gives you the potential to realize significant returns if some of your speculative investments succeed without risking more than you can afford to lose.

FINRA, the acronym of the Financial Industry Regulatory Authority, is the largest self-regulatory organization (SRO) in the United States. It writes and enforces rules governing the securities industry as well as enforcing federal securities laws.

FINRA has jurisdiction over all broker-dealers and registered representatives, and has authority to discipline firms and individuals who violate the rules. It regulates trading in stocks, mutual funds, variable annuities, corporate bonds, and futures and options contracts on securities. It also acts as the SRO for a number of securities exchanges.

FINRA reviews materials that investment companies provide to their clients and prospective clients to ensure those materials comply with the relevant guidelines. The FINRA website also provides investor education and alerts on current issues of importance to investors.

Through its BrokerCheck database, FINRA provides a resource for investors to check the credentials of people and firms.

In addition, FINRA resolves disputes between broker-dealers and their clients, through either mediation or arbitration.

FINRA was created in 2007 by the merger of NASD (formerly the National Association of Securities Dealers) and the regulatory and enforcement divisions of the New York Stock Exchange (NYSE).

A firm quote includes a bid and ask price at which a market maker is willing to trade a specific quantity -- 100 shares of stock, for example.

For example, a firm quote of 42.50/42.70 means that the market maker will pay $42.50 for 100 shares and is willing to sell them for $42.70. But those prices would not apply to trades larger than 100 shares. Then prices would have to be negotiated.

First dollar coverage means that your health insurance plan typically begins to pay its share of your covered services from the first service you receive in the plan network. In a fee-for-service plan, payments for covered services begin as soon as you have met the deductible.

A fixed annuity is a contract that allows you to accumulate earnings at a fixed rate during a build-up period.

You pay the required premium, either in a lump sum or in installments. The insurance company invests its assets, including your premium, so it will be able to pay the rate of return that it has promised to pay.

At a time you select, usually after you turn 59 1/2, you can choose to convert your account value to retirement income.

Among the alternatives is receiving a fixed amount of income in regular payments for your lifetime or the lifetimes of yourself and a joint annuitant. That's called annuitization. Or, you may select some other payout method.

The contract issuer assumes the risk that you could outlive your life expectancy and therefore collect income over a longer period than it anticipated. You take the risk that the insurance company will be able to meet its obligations to pay.

Fixed-income investments typically pay interest or dividends on a regular schedule and may promise to return your principal at maturity, though that promise is not guaranteed in most cases.

Among the examples are government, corporate, and municipal bonds, preferred stock, and guaranteed investment contracts (GICs).

The advantage of holding fixed-income securities in an investment portfolio is that they provide regular, predictable income.

But a potential disadvantage of holding them over an extended period, or to maturity in the case of bonds, is that they may not increase in value the way equity investments may. As a result, a portfolio overweighted with fixed-income investments may make you more vulnerable to inflation risk.

A fixed-rate mortgage is a long-term loan that you use to finance a real estate purchase, typically a home.

Your borrowing costs and monthly payments remain the same for the term of the loan, no matter what happens to market interest rates.

This predetermined expense is one of a fixed-rate loan's most attractive features, since you always know exactly what your mortgage will cost you.

If interest rates rise, a fixed-rate mortgage works in your favor. But if market rates drop, you have to refinance to get a lower rate and reduce your mortgage costs.

Typical terms for a fixed-rate mortgage are 15, 20, or 30 years, though you may be able to arrange a different length. With a hybrid mortgage, which begins as a fixed-rate loan and converts to an adjustable rate, the fixed-term portion is often seven or ten years.

A flat tax, also known as a regressive tax, applies to everyone at the same rate, as a sales tax does.

Advocates of a flat income tax for the United States say it's simpler and does away with the kinds of tax breaks that tend to favor the wealthy. Opponents say that middle-income taxpayers would carry too large a proportion of the total tax bill.

Some employers offer flexible spending accounts (FSAs), sometimes called cafeteria plans, as part of their employee benefits package.

You contribute a percentage of your pretax salary, up to the limit your plan allows, which you can use to pay for qualifying expenses.

Qualifying expenses include medical costs that aren't covered by your health insurance, childcare, care for your elderly or disabled dependents, and life insurance.

The amount you put into the plan is not reported to the IRS as income, which means your taxable income is reduced.

However, you have to estimate correctly the amount you'll spend during the year when you arrange to have amounts deducted from your paycheck. Once you decide on the amount you are going to contribute to an FSA for a year, you cannot change it unless you have a qualifying event, such as marriage or divorce.

If you don't spend all that you had withheld within the year -- or in some plans within the year plus a two-and-one-half month extension -- you forfeit any amount that's left in your account.

In some plans you pay for the qualifying expenses and are reimbursed when you file a claim. In other plans, you use a debit card linked to your account to pay expenses directly from the account.

In investment terms, a float is the number of outstanding shares a corporation has available for trading.

If there is a small float, stock prices tend to be volatile, since one large trade could significantly affect the availability and therefore the price of these stocks. If there is a large float, stock prices tend to be more stable.

In banking, the float refers to the time lag between your depositing a check in the bank and the day the funds become available for use. For example, if you deposit a check on Monday, and you can withdraw the cash on Friday, the float is four days and works to the bank's advantage.

Float is also the period that elapses from the time you write a check until it clears your account, which can work to your advantage. However, as checks are increasingly cleared electronically at the point of deposit, this float is disappearing.

In a credit account, float is the amount of time between the date you charge a purchase and the date the payment is due. If you have paid your previous bill in full and on time, you don't owe a finance charge on the amount of the purchase during the float.

When a corporation or public agency offers new stocks or bonds to the public, making the offering is called floating an issue.

In the case of stocks, the securities may be an initial public offering (IPO) or additional issues of a company that has already gone public. In that case, they're called secondary offerings.

A debt security or corporate preferred stock whose interest rate is adjusted periodically to reflect changing money market rates is known as a floating rate instrument.

These securities, for example five-year notes, are initially offered with an interest rate that is slightly below the rate being paid on comparable fixed-rate securities.

But because the rate is adjusted from time to time, its market price generally remains very close to the offering price, or par.

When a nation's currency moves up and down in value against the currency of another nation, the relationship between the two is described as a floating exchange rate.

For example, the US dollar is worth more Japanese yen in some periods and less in others. That movement is usually the result of what's happening in the economy of each of the nations and in the economies of their trading partners.

A fixed exchange rate, on the other hand, means that two (or more) currencies, such as the US dollar and the Bermuda dollar, always have the same relative value.

Floating shares are shares of a public corporation that are available for trading in a stock market.

The number of floating shares may be smaller than the company's outstanding shares if founding partners, other groups with a controlling interest, or the company's pension fund, employee stock ownership plan (ESOP), or similar programs hold shares in their portfolios that they aren't interested in selling.

Some equity index providers, including Standard & Poor's, use floating shares rather than outstanding shares in calculating their market-capitalization weighted indexes on the grounds that a float-adjusted index is a more accurate reflection of market value.

Floor brokers at a securities or commodities exchange handle client orders to buy or sell through a process known as a double action auction, in which brokers bid against each other to secure the best price.

The orders these brokers execute are sent to the floor of the exchange from the trading department or order room of the brokerage firms they work for. When a transaction is completed, the floor broker relays that information back to the firm, and the client is notified.

Unlike floor brokers, who fill client orders, floor traders buy and sell stocks or commodities for their own accounts on the floor of an exchange.

Floor traders don't pay commissions, which means they can make a profit on even small price differences. But they must still abide by trading rules established by the exchange. One of those rules is that client orders take precedence over floor traders' orders.

Foreclosure occurs when your lender repossesses your home because you have defaulted on your mortgage loan or home equity line of credit.

You default by failing to pay interest and repay the principal you owe on time. Foreclosed property is often sold at auction to allow the lender to recover some of or all the outstanding debt.

Any type of financial instrument that is used to make payments between countries is considered foreign exchange. The list of instruments includes electronic transactions, paper currency, checks, and signed, written orders called bills of exchange.

Large-scale currency trading, with minimums of $1 million, is also considered foreign exchange and can be handled as spot price transactions, forward contract transactions, or swap contracts.

Spot transactions close at the market price within two days, and the others are set to close at an agreed-upon price and an agreed-upon date in the future.

All investment advisory firms must register by filing a Form ADV either with the Securities and Exchange Commission if they manage $25 million or more in client assets or with the state securities regulator in the state where they principally work.

The form is divided into two sections. Part 1 provides information about past disciplinary actions, if any, against the adviser. Part 2 summarizes the adviser's background, investment strategies, services, and fees.

If an advisory firm is registered with the SEC, you can obtain copies of Form ADV at the SEC's Investment Adviser Public Disclosure (IAPD) website (www.adviserinfo.sec.gov).

Otherwise, you can request it directly from the adviser or your state securities regulator. You can find contact information on the website of the North American Securities Administrators Association (www.nasaa.org).

When you invest on a set schedule, you're using a technique known as formula investing. You're formula investing when you dollar cost average, or make investments to maintain a predetermined asset allocation.

One appeal of this approach, for investors who follow it, is that it eliminates having to agonize over when to buy or sell. It also encourages regular investing. But it does not guarantee your portfolio will grow in value or that you won't lose money.

A forward contract is similar to a futures contract in the sense that both types of contracts cover the delivery and payment for a specific commodity at a specific future date at a specific price.

The difference is that a futures contract has fixed terms, such as delivery date and quantity, and it's traded on a regulated futures exchange.

A forward contract is traded over the counter and all details of the contract are negotiated between the counterparties, or partners to the agreement.

The price specified in the forward contract for foreign currency, government securities, or other commodities may be higher or lower than the actual market price at the time of delivery, known as the spot price.

But the participants have locked in a price early specifically so they know what they will receive or pay for the product, eliminating market risk.

Stock analysts calculate a forward price-to-earnings ratio, or forward P/E, by dividing a stock's current price by estimated future earnings per share.

Some forward P/Es are calculated based on estimated earnings for the next four quarters. Others use actual earnings from the past two quarters with estimated earnings for the next two.

A forward P/E may help you evaluate the current price of a stock in relation to what you can reasonably expect to happen in the near future. In contrast, a trailing P/E is based exclusively on past performance.

For example, a stock whose price seems high in relation to the last year's earnings may seem more reasonably priced if earnings estimates are higher for the next year. On the other hand, the expectation of lower future earnings may make the current price higher than you are willing to pay.

Institutional investors, including mutual fund companies and pension funds, who trade large blocks of securities among themselves are operating in what's called the fourth market.

Usually, the transactions are handled through electronic communications networks (ECNs).

Among the appeals of using an ECN are reduced trading costs, the ability to trade after hours, and the fact that offers to buy and sell are matched anonymously.

If you reinvest your dividends or invest a fixed dollar amount in a stock dividend reinvestment plan (DRIP) or mutual fund, the amount may not be enough to buy a full share.

Alternately, there may be money left over after buying one or more full shares. The excess amount buys a fractional share, a unit that is less than one whole share.

In a DRIP, a fractional share gives you credit toward the purchase of a full share. With a mutual fund, in contrast, the fractional share is included in your account value.

Freddie Mac is a shareholder-owned corporation that was chartered in 1970 to increase the supply of mortgage money that lenders are able to make available to homebuyers.

To do its job, Freddie Mac buys mortgages from banks and other lenders, packages them as securities, and sells the securities to investors. The money it raises by selling these bonds pays for purchasing the mortgages.

Lenders use the money they realize from selling mortgages to Freddie Mac to make additional loans. Lenders must be approved in order to participate in the program. Loans must meet Freddie Mac qualifications to be eligible for purchase.

To facilitate the lending process, Freddie Mac provides lenders with an automated underwriting tool to help them evaluate mortgage applications.

Freddie Mac guarantees the securities it issues, but the bonds aren't federal debts and aren't federally guaranteed.

Like its sister corporation Fannie Mae, Freddie Mac shares are traded on the New York Stock Exchange (NYSE).

A business's free cash flow statement may differ significantly from its cash flow statement. The cash flow statement generally represents earnings before interest, taxes, depreciation, and amortization (EBITDA).

Cash flow and EBITDA focus specifically on the profitability of the company's actual business operations, independent of outside factors such as debt and taxes. Free cash flow, however, reports the net movement of cash in and out of the company.

To determine free cash flow, equity analysts add up all the company's incoming cash and then subtract cash that the company is obligated to pay out, which includes all expenses, debt service, preferred dividends, and capital expenditures. The result tells you how much cash was left over or how short of cash the company was at the end of the fiscal period.

The load, or sales charge, that you pay when you purchase shares of a mutual fund or annuity is called a front-end load. Some mutual funds identify shares purchased with a front-end load as Class A shares.

The drawback of a front-end load is that a portion of your investment pays the sales charge rather than being invested. However, the annual asset-based fees on Class A shares tend to be lower than on shares with back-end or level loads.

In addition, if you pay a front-end load, you may qualify for breakpoints, or reduced sales charges, if the assets in your account reach a certain milestone, such as $25,000.

If you trade stock or other investments because you know that an upcoming transaction by a third party is likely to affect the market price of the investment, you're front running.

Because front running, sometimes known as forward trading, relies on information that isn't available to the general public, it's considered unethical in certain circumstances.

One example is a broker-dealer who trades at a better price for a personal account than for a client's account.

Federal and municipal governments can promise repayment of debt securities they issue because they can raise money through taxes, borrowing, and other sources of revenue. That power is described as full faith and credit.

Full-service brokerage firms usually offer their clients a range of services in addition to executing their buy and sell orders.

These firms usually have full-time research departments and investment analysts who provide information the firm's brokers share with clients.

In addition, some employees of the firm may be qualified to provide investment advice, develop financial plans, or design strategies for meeting financial goals.

Full-service firms tend to charge higher commissions and fees than discount brokerage firms or firms that operate only online. However, some full-service firms offer online services and reduce their fees for transactions handled though a client's online account.

A fund family, or family of funds, is a group of mutual funds controlled by a single investment company, bank, or other financial institution.

The various funds within the family have different investment objectives, such as growth or income. If you invest in several funds in a family, you can transfer assets from one fund to another by phone or online.

If it's a family of load funds, there may or may not be a sales charge for the transfer. If it's a no-load fund, no sales charges apply.

You will owe capital gains taxes on any profit you realize from selling fund shares that have increased in value even if the money is reinvested in another fund. The only way you'll avoid taxes is if you own the funds in a tax-deferred or tax-free account.

However, if the shares have lost value when you sell, you'll have a capital loss.

Fund flows are the traffic of money into and out of mutual funds or between funds that invest in various sectors.

This flow of money is considered an indicator of the direction the markets are headed. For example, large inflows of money into mutual funds may be interpreted as a bullish indicator for the stock market or for a specific sector, while dramatic outflows may signify an impending downturn.

However, if investors chase past performance or follow the currently hot sectors in deciding where to invest, large inflows may in fact precede disappointing performance.

Fund networks, sometimes called fund supermarkets, offer access to thousands of different mutual funds from many of the major fund families.

Investing through a fund network can make it easier to diversify your portfolio, or put your assets into a variety of investments, since you have access to all the funds through one account.

And you can usually -- although not always -- transfer assets from one fund family in the network to another without an exchange fee although sales charges may apply with some funds.

In addition, capital gains taxes may be due if you're investing through a taxable account and the shares of the fund you're leaving have increased in value.

A fund of funds is a pooled investment, such as a mutual fund or a hedge fund, whose underlying investments are other funds rather than individual securities.

Despite some major differences, what all funds of funds have in common is an emphasis on diversification for its potential to reduce risk without significantly reducing return.

They're also designed to simplify the investment process by offering one-stop shopping.

Many mutual fund FOFs are asset allocation funds and typically include both stock and bond funds in a particular combination that the FOF manager has chosen to meet a specific objective. A mutual fund FOF may select all its funds from a single fund family or it may choose funds offered by different investment companies.

A hedge fund FOF, which owns stakes in other hedge funds, allows investors to commit substantially less money to gain exposure to this investment category than it would cost to invest in even one fund.

A major drawback with all funds of funds is that the fees tend to be higher than you would pay owning the underlying funds directly.

Fund overlap may occur if more than one mutual fund or exchange traded fund (ETF) in your portfolio invests in the same underlying security or securities.

For example, you might own an ETF and an actively managed mutual fund that both hold a large number of shares in the same group of stocks. The result is that your portfolio may not be as diversified as you intend.

To prevent excessive overlap, it's always a good idea to review the major holdings listed in a fund's prospectus or on the fund company's website, making sure that you're not overweighting your portfolio with a security you already own through another investment.

Fundamental analysis is one of two main methods for analyzing a stock's potential return.

Fundamental analysis involves assessing a corporation's financial history and current standing, including earnings, sales, and management. It also involves gauging the strength of the corporation's products or services in the marketplace.

A fundamental analyst uses these details as well as the current state of the economy to assess whether the stock is likely to increase or decrease in value in the short- and long-term and whether the stock's current price is an accurate reflection of its value.

When two or more things are inter-changeable, can be substituted for each other, or are of equal value, they are described as fungible.

For example, shares of common stock issued by the same company are fungible at any point in time since they have the same value no matter who owns them.

Forms of money, such as dollar bills or euros, are fungible since each can be exchanged or substituted for another of the same currency.

Similarly, put and call futures contracts on the same commodity that expire on the same date are fungible since a contract to buy -- a call -- can offset, or neutralize, a futures contract to sell -- a put.

On the other hand, multiple classes of the same stock may not be fungible. For example, in some markets citizens of the country are eligible to buy one class of stock and noncitizens a different class. Typically, the shares have different prices and may not be exchanged for each other.

A futures commission merchant (FCM) is a person or a firm that acts as an agent to execute buy or sell orders for futures contracts or commodity options.

You may open an account directly with an FCM or place your orders through an introducing broker or commodity trading adviser.

Futures contracts, when they trade on regulated futures exchanges, obligate you to buy or sell a specified quantity of the underlying product for a specific price on a specific date.

The underlying product could be a commodity, stock index, security, or currency.

Because all the terms of a listed futures contract are structured by the exchange, you can offset your contract and get out of your obligation by buying or selling an opposing contract before the settlement date.

Futures contracts provide some investors, called hedgers, a measure of protection from price volatility on the open market.

For example, wine manufacturers are protected when a bad crop pushes grape prices up on the spot market if they hold a futures contract to buy the grapes at a lower price. Grape growers are also protected if prices drop dramatically -- if, for example, there's a surplus caused by a bumper crop -- provided they have a contract to sell at a higher price.

Unlike hedgers, speculators use futures contracts to seek profits on price changes. For example, speculators can make (or lose) money, no matter what happens to the grapes, depending on what they paid for the futures contract and what they must pay to offset it.

Traditionally, futures contracts and options on those contracts have been bought and sold on a futures exchange, or trading floor, in a defined physical space.

In the United States, for example, there are futures exchanges in Chicago, Kansas City, Minneapolis, and New York.

As electronic trading of these products expands, however, buying and selling doesn't always occur on the floor of an exchange. So the term is also used to describe the activity of trading futures contacts.