Trading Terms Starting With L

  • LBO

    see Leveraged buyout.
  • LEAPS®

    Long-term Equity AnticiPation Securities®, or LEAPS, are long-term option contracts. Equity LEAPS calls and puts can have expirations up to three years into the future, and expire in January of their expiration years. Index LEAPS may have expirations of up to five years into the future and generally expire in December of their expiration years.
  • LIBOR

    London Inter-Bank Offer Rate; the rate banks in London are willing to lend to other banks in the short-term. Since banking in London is conducted in a wide range of currencies, the LIBOR rate has become a benchmark for international floating currency rates which are generally quoted as LIBOR rate plus or minus a specified amount.
  • LLC

    see Limited liability company.
  • LTD

    see Limited company.
  • Ladder strategy / laddering

    a strategy employed by debt investors in which a bond portfolio is constructed by investing equal amounts in different debt securities with different maturities, in order to stagger when principal is returned from each investment.
  • Large cap

    a stock with a market capitalization worth at least $5 billion.
  • Large cap fund

    a mutual fund that focuses its investments primarily in large-capitalization stocks. See Large-cap.
  • Last in, first out

    when a security position from a pool of similar positions is closed, that position last established is considered closed first for accounting and/or tax purposes. Also termed LIFO.
  • Last trading day / last business day

    the last day on which an expiring class of options are traded on an exchange. For equity options this is generally the Friday before the expiration date, or the third Friday in the expiration month (commonly known as expiration Friday). For a European-style index option this is generally the day before the cash settlement value is determined, or the Thursday before its expiration date. Note, however, that the day cash settlement values are determined may vary among index option classes.
  • Lead manager

    the commercial bank, investment bank or other financial institution responsible for setting up a syndicate of underwriters for a given credit or bond issue.
  • Leading indicator

    an economic indicator with predictive value. See Economic indicators.
  • Leg

    1. one part of a complex position composed of two or more different options and/or a position in the underlying stock.
    2. instead of entering one order to establish all parts of a complex position simultaneously, one part is executed with the hope of establishing the other part(s) later at a better price.
  • Leverage

    an investor's use of borrowed money to finance a position. Buying stock on margin represents a leverage position because part of the shares' cost is borrowed from the investor's brokerage firm. Based on investor's portion of the investment, an increase or decrease in the stock's price will result in a larger percentage profit or loss than if the shares were fully paid for in cash. Options are also considered leveraged instruments because of the ability to control 100 shares of stock with a single option contract, often for a fraction of the cost of the shares.
  • Leveraged buyout (LBO)

    a corporate takeover maneuver that involves a company being purchased largely with borrowed funds, with the target company's assets serving as collateral. In other words, most equity in the target company's capitalization is replaced with debt.
  • Liability

    any financial obligation, debt, claim or loss that requires payment to another party.
  • Limit down

    a term generally used with respect to the futures market, a situation in which the trading price of a contract has declined in one day by the maximum amount allowed by the listing exchange. For the day, the contract may trade at this price, but no lower. Futures trading is not currently available at TradeKing.
  • Limit order

    an order to buy or sell a security at a stated price (the limit price). It is always possible for the order to be executed at a price better than that specified, but not worse. Emphasis is being placed more on the price of the order's execution than the timing.
  • Limit up

    a term generally used with respect to the futures market, a situation in which the trading price of a contract has increased in one day by the maximum amount allowed by the listing exchange. For the day, the contract may trade at this price, but no higher. Futures trading is not currently available at TradeKing.
  • Limited company (LTD)

    a type of company entity structured so its owners, or shareholders, have liability limited to the amount of their investment, indicated with the abbreviation "Ltd." after the company name. Often this is a British company structured as an incorporated ("Inc.") company in the United States.
  • Limited liability company (LLC)

    a type of company entity structured with features from a corporation and a limited partnership so that its owners have liability limited to the amount of their investment as in a corporation. But like a partnership, the profits are divided proportionally among the owners who are taxed at their individual rates. The LLC itself pays no income tax.
  • Limited partner / limited partnership

    an individual partner who is a member of a partnership, who does not engage in the day to day operations of the business, but whose liability is limited entirely to the amount of his or her investment. Conversely, the general partners are held liable for any claim brought against the partnership.
  • Liquid market

    a trading environment characterized by high volume, frequent transactions and narrow bid-ask spreads. At any given moment there is a surplus of ready and willing buyers and sellers, so a relatively large number of shares or contracts can trade in a single transaction without significantly affecting the security's market price. The result is low price volatility. Also termed Thick market or Deep market. Opposite of Illiquid market.
  • Liquidate (company)

    when a company goes out of business, to sell all of its assets. Proceeds are used to pay creditors (typically bondholders).
  • Liquidate (position)

    an act taken by an investor or trader to exit or close out a securities position for conversion into cash. May also be taken by a brokerage firm on behalf of a customer who has failed to meet a margin call or who has demonstrated an inability to manage risk.
  • Liquidity

    1. when an asset such as a security can be quickly converted into cash without significantly affecting its current market price. A liquid market is one characterized by high trading volume and narrow bid-ask spreads.
    2. when a company has sufficient cash flow to meet the needs of daily operations, including its debt obligations.
  • Liquidity ratio

    a simple calculation that indicates whether a company has adequate short-term assets to cover its short-term liabilities. It is a measure of a company's current liquidity and may be calculated as: (current assets - inventories) Ö current liabilities. Also termed Acid test ratio.
  • Listed option

    a standardized equity or index option that is available for trading on a securities exchange.
  • Listing

    when a company's stock is accepted for trading, or "listed," on a securities exchange.
  • Load

    a fee added to the purchase or sale price of a mutual fund or annuity. When such a fee is charged at purchase it's referred to as a Front-end load. When charged at sale, it's a Back-end load.
  • Load fund

    a mutual fund that charges a load, or a fee, for its purchase (front-end) or sale (back-end). Opposite of No-load fund.
  • Loan

    an advance of money from a lender (creditor) to a borrower (debtor) that is to be repaid at a specific time, or over a specific timeframe, with interest based on the amount of the loan. A bondholder is essentially lending money to its issuer.
  • Locating stock

    the process of an investor, or a broker-dealer on behalf of a customer, locating shares that may be borrowed from a broker-dealer in order to make a short sale in the marketplace.
  • Log normal distribution

    a probability distribution. Log normal distributions are commonly used to describe returns calculated for periods of a year or longer. The difference between a normal and a log-normal distribution is that log-normal distributions allow for a higher number of outcomes to occur above a zero stock price, whereas a normal distribution gives equal number to stock price outcomes that may occur above and below the mean stock price. Because a stock's price or index's value can only decrease to zero and theoretically increase to infinity, there are more possible outcomes which may occur that are higher than the mean price. Log normal distributions account for this difference, whereas normal distributions do not. Normal distributions assume a stock's price or index value can move equally from the mean in either direction. See also Normal distribution.
  • Long bond

    any bond with a long maturity, generally 10 years or more. More specifically, a term referring to the 30-year U.S. Treasury bond that has become the benchmark for rates set for other long-term bonds or debt instruments.
  • Long call (equity)

    after the opening purchase transaction of an equity call contract, the investor buying the call becomes the owner of a long equity call position. That investor has purchased and holds the right to buy 100 underlying shares at the strike price by exercising the call. See Exercise (equity option).
  • Long call (index)

    after the opening purchase transaction of an index call contract, the investor buying the call becomes the owner of a long index call position. That investor has purchased and holds the right to receive, upon exercise of the call, a cash amount based on the option's intrinsic value, or the cash settlement amount. See Exercise (index option).
  • Long market value

    the value of any long securities positions held in a brokerage account, determined on a daily basis, but generally not including options.
  • Long option

    a position resulting from the opening purchase of a call or put contract and held (owned) in a brokerage account.
  • Long put (equity)

    after the opening purchase transaction of an equity put contract, the investor buying the put becomes the owner of a long equity put position. That investor has purchased and holds the right to sell 100 underlying shares at the strike price by exercising the put. See Exercise (equity option).
  • Long put (index)

    after the opening purchase transaction of an index put contract, the investor buying the put becomes the owner of a long index put position. That investor has purchased and holds the right to receive, upon exercise of the put, a cash amount based on the option's intrinsic value, or the cash settlement amount. See Exercise (index option).
  • Long stock

    shares of stock that are purchased and held in a brokerage account, and which represent an equity interest in the company that issued the shares. Not for the purpose of covering a short stock position.
  • Long the market

    to have a position in a security that is expected to benefit from an upward (bullish) move in the broader market.
  • Long-term

    a generalized description used in finance that may refer to a wide range of timeframes. With respect to accounting it denotes any investment held, or series of interest payments received, for one year or longer.
  • Long-term capital gain

    a gain realized from a security that has been held for a period of longer than one year. As of this writing, long-term capital gains are taxed at a rate lower than that for ordinary income.
  • Loose credit

    See Easy monetary policy.
  • Loss

    1. a decrease in the value of any investment.
    2. expenditures in excess of income.
    3. with respect to a transaction, costs in excess of proceeds received. Opposite of Gain or Profit.
  • Lot

    1. a number of shares that are traded together, usually in units of 100 and called a round lot.
    2. with respect to options or futures it's the minimum unit of trading, or one contract ("one lot"). Futures trading is not currently available at TradeKing.
  • Low

    with respect to an individual security, the lowest trading price within a given timeframe. With respect to an index, its lowest value during a given timeframe.