US Brokerage Firms Key Terms
Some terms you will find as you research US Brokerage firmsUS brokerage firms are often used by larger organizations because they can help determine the goals of the firm and handle any trades required to help achieve those goals. There are many different kinds of brokerage firms, including full-service, on-line or discount. Brokerage firms can handle a wide variety of investment products including stock portfolios, mutual funds and bonds. There are many well-established firms as well as discount firms, depending on your needs. As you review the various firms and their services, you will want to become familiar with some terms.
Return on equityReturn on equity (ROE) is equal to net income (what remains after subtracting costs and expenses from total revenue) divided by total equity (assets that remain after all liabilities) expressed as a percentage. US brokerage firms track and factor in ROE when they recommend buying or holding stock in companies.
Return on investmentReturn on investment (ROI) is also known as rate of return (ROR) and refers to the ratio of money gained or lost on an investment when compared to the money that was invested. ROI is usually expressed as a percentage. US brokerage firms keep close tabs on the ROI of companies that they track in their portfolios.
Mutual fundA mutual fund is a common type of investment that is managed by US brokerage firms and consists of a pool of money that has been collected from investors. The money is then used to purchase stocks, bonds, money market instruments or other types of securities. The manager of the fund trades the pooled money on a predetermined basis.
SEC has a definition of mutual funds.
Zero-coupon bondsA zero-coupon bond is one that is bought at a lower price than its face value (value as printed on the instrument). The face value is then repaid at the time of maturity. Examples of this type of bond, sometimes recommended by US brokerage firms, include US Treasury bills and US Savings bonds.
Investopedia has a definition of zero-coupon bonds.
Municipal bondA municipal bond is issued by a city or other type of local government. It is a type of formal contract for repayment of borrowed money with interest paid at certain intervals. Municipal bonds are issued as a debt obligation that requires the issuer to either pay interest or repay the principal at a later date when it matures to the holder of the bond. US brokerage firms often recommend municipal bonds as part of an investment portfolio.
The Securities Industry and Financial Markets Association has a more complete overview of this type of investment.
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