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  • A managed account is a portfolio of stocks or bonds chosen and managed by a professional investment manager who makes the buy and sell decisions.

    Each managed account has an investment objective, and each manager oversees multiple individual accounts invested in the same basic portfolio to meet the same objective.

    While managed accounts resemble mutual funds in some ways, with a managed account you own individual securities rather than shares of a common fund.

    You may also be able to request that the manager avoid certain investments, which you can't do with a mutual fund. And, through your broker you might ask the manager to sell certain holdings in your account to realize capital gains or losses.

    There are no phantom gains in managed accounts. Those gains can occur if a mutual fund realizes a profit from selling an investment and credits you with a capital gain even if there's no actual increase in your account value.

    However, the minimum investment is usually substantially higher for a managed account - often $100,000. Plus, the annual fees, which are included in the amount you pay the financial professional who recommends the account, may be higher than the fees on a mutual fund of similar value.

  • Browse Related Terms: Actively managed fund, Buy side, Closed-end fund, Economy, Enhanced index fund, index fund, Institutional investor, Managed account, Management fee, Money manager, Passively managed, Portfolio manager, Prudent man rule, Public company, Wrap account

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  • To protect the margin loans they make, brokers issue a margin call if your equity in your margin account falls below the required maintenance level of at least 25%.

    If you get a margin call, you must deposit additional cash or securities to meet the call, bringing the balance of the account back up to the required level.

    If you don't meet the call, securities in your account may be sold, and your broker repaid in full. For example, if you buy 1,000 shares on margin when they are seliing at $10 a share, and the price falls to $7 a share, your equity would be $2,000 ($7,000 market value minus $5,000 loan is $2,000).

    That's 28.6% of the market value. If your brokerage firm has a maintenance requirement of 30%, you would receive a margin call to bring your equity back to the required level - in this case $2,100, which is 30% of $7,000.

    You might also get a margin call if you trade futures contracts and the value of your account drops below the required maintenance level. However, margin requirements for futures are different than for stock.

  • Browse Related Terms: Bucket shop, Discretionary account, Frontrunning, Futures Commission Merchant (FCM), Introducing broker (IB), Margin call, Piggyback, Securities Investor Protection Corporation (SIPC), Sell side, unit trusts

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  • The margin requirement is the minimum amount the Federal Reserve, in Regulation T, requires you to deposit in a margin account before you can trade through that account.

    Currently this minimum, or initial margin, is $2,000, or 50% of the purchase price of securities you buy on margin, or 50% of the amount that you receive for selling securities short.

    In addition, there's a minimum maintenance requirement, a minimum of 25% and often more, of the market value of the securities in the account. The maintenance requirement is set by the New York Stock Exchange (NYSE), the National Association of Securities Dealers (NASD), and the individual brokerage firms.

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  • Because the US income tax system is progressive, your tax rate rises as your taxable income rises through two or more tax brackets.

    Your marginal tax rate is the rate you pay on the taxable income that falls into the highest bracket you reach: 10%, 15%, 25%, 28%, 33%, or 35%.

    For instance, if you have a taxable income that falls into three brackets, your would pay at the 10% rate on the first portion, the 15% rate on the next portion, and the 25% federal tax on only the third portion. Your marginal rate would be 25%.

    However, your marginal tax rate is higher than your effective tax rate, which is the average rate you pay on your combined taxable income. That's because you're only paying tax at your marginal, or maximum, rate on the top portion of your income.

    Keep in mind that your marginal tax rate only applies to tax on ordinary income and does not take into account other tax liabilities - such as realized long-term capital gains which are taxed at your long capital gains rate - or tax credits for which you may be eligible, which may reduce the actual tax you pay.

  • Browse Related Terms: Effective tax rate, flat tax, Marginal tax rate, Private letter ruling, Progressive tax, Regressive tax, Tax bracket

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  • Traditionally, a securities market was a place - such as the New York Stock Exchange (NYSE) - where members met to buy and sell securities.

    But in the age of electronic trading, the term market is used to describe the organized activity of buying and selling securities, even if those transactions do not occur at a specific location.

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  • Market capitalization is a measure of the value of a company, calculated by multiplying the number of either the outstanding shares or the floating shares by the current price per share.

    For example, a company with 100 million shares of floating stock that has a current market value of $25 a share would have a market capitalization of $2.5 billion.

    Outstanding shares include all the stock held by shareholders, while floating shares are those outstanding shares that actually are available to trade.

    Market capitalization, or cap, is one of the criteria investors use to choose a varied portfolio of stocks, which are often categorized as small-, mid-, and large-cap. Generally, large-cap stocks are considered the least volatile, and small caps the most volatile.

    The term market capitalization is sometimes used interchangeably with market value, in explaining, for example, how a particular index is weighted or where a company stands in relation to other companies.

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  • Market cycles are the recurrent patterns of expansion and contraction that characterize the securities and real estate markets.

    While the pace of these recurrent cycles of gain and loss isn't predictable, certain economic conditions affect the markets in fairly reliable ways.

    For instance, stock and real estate usually gain value when the economy is healthy and growing, whereas bonds often do well during periods of rising interest rates. And during times of economic uncertainty, investors often prefer to put their money into short-term cash equivalent investments, such as US Treasury bills.

    The cyclical pattern in one type of asset sometimes works in opposition to what's occurring at the same time in another asset class or subclass. For example, when the stock market is gaining value, the bond market may be flat or falling, or vice versa. Similarly, sometimes large-company stocks increase in value faster than small caps, but sometimes the opposite is true.

    But while the ups and downs of the markets are inevitable, it's also true that it's virtually impossible to pinpoint the peak of a rising market or the bottom of a falling market except in hindsight.

  • Browse Related Terms: bull market, Correlation, Countercyclical stock, Crash, Cyclical stock, Defensive security, deflation, Depression, inflation, Market cycles, Secular market

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  • A broker-dealer who is prepared to buy or sell a specific security - such as a bond or at least one round lot of a stock - at a publicly quoted price, is called a market maker in that security.

    Other brokers buy or sell specific securities through market makers, who may maintain inventories of those securities.

    There is often more than one market maker in a particular security, and they bid against each other, helping to keep the marketplace liquid.

    The Stock Market and the corporate and municipal bond markets are market maker markets. In contrast, on the floor of the New York Stock Exchange (NYSE) there's a single specialist to handle transactions in each security.

  • Browse Related Terms: Ask, BID, bid and ask, Dealer, Firm quote, Make a market, Market maker, Pink Sheets, Quotation (Quote), Trading floor

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  • A security's market price is the price at which it is currently trading in an organized market.

    A good indication of the market price of a stock selling on the New York Stock Exchange (NYSE) or the NASDAQ Stock Market is the last reported transaction price.

    However, if you give a market order to buy securities, then market price means the current ask, or offer. If you give a market order to sell, market price means the current bid.

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  • Market timing means trying to anticipate the point at which a market has hit, or is about to hit, a high or low turning point, based on historical patterns, technical analysis, or other factors.

    Market timers try to buy as the market turns up and sell before the market turns down. It's the anticipated change in direction rather than the amount of time that passes between those changes that's significant for these investors.

    The term is sometimes used in a negative sense to refer to a trading strategy that aims for quick profits by taking advantage of short-term changes in securities' prices.

    Market timers, sometimes known as day traders, trade electronically. They try to buy low and sell high by taking advantage of second-to-second or minute-to-minute changes in the financial marketplace. They base decisions on information such as a forecast on interest rates or a sell-off in a particular market sector.

  • Browse Related Terms: Fast market, Market timing, Market value, Overbought, Penny stock, Slow market, Soft market, Suspended trading, Thin market, Thinly traded

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