It is illegal to make a purchase or sale of stock based on information that is not widely available. An example of insider trading would be for a CEO to sell a ton of his stock days before a negative earnings report was released. Since it is safe to assume the CEO was aware of the negative nature of his company's earnings, this would be insider trading. If he wanted to sell his stock for some other reason, the appropriate thing to do would be to pre-announce the negative earnings forecast.

Institutional investors are large buyers and sellers of stocks representing banks, pension funds, mutual funds, hedge funds, and any other large entity.

As it relates to call options, intrinsic value is the positive difference between a stock's share price and an option's strike price. For puts, it is the opposite. In either case, an option cannot have negative intrinsic value. Any time the share price is lower than the strike price (for calls - for puts, it's the opposite), there is said to be zero intrinsic value.

An investment club is a group of individual investors who pool their money together in order to invest. Most investment clubs have dues that are used to purchase investments, although members can normally invest beyond their monthly dues. Most clubs meet either biweekly, monthly, or quarterly to discuss the club's performance and determine future strategies.

Investor's Business Daily is the premiere newspaper for individual investors in the United States.

Individual Retirement Account. There are two types of IRAs - the traditional IRA and the Roth IRA. The traditional IRA allows individual investors to contribute up to $4,000 per year of tax deductible earnings into an IRA. Once in the IRA, the funds can be used for most investments, and they are allowed to compound tax-free until withdrawal at age 59.5 or older. A Roth IRA is slightly different in that the contributions are not tax deductible, however, the eventual withdrawals are completely tax-free.

Some people believe in what is known as the efficient market hypothesis (EMH), which states that stocks are generally purchased correctly, and therefore, it is very difficult to beat the market. To explain wild price fluctuations, proponents of the EMH admit to temporary irrational movements in stock prices that are quickly corrected.

Junk bonds are bonds issued by companies whose credit has been rated non-investment grade quality by the major bond rating agencies.

Large cap, which is synonymous with "big cap," commonly refers to companies with market capitalizations greater than $10 billion. Exxon-Mobil and General Electric are the largest of large caps, with market caps in excess of $300 billion.

Proponents of the CANSLIM strategy believe in cutting losses and letting their winners run. They say that most individual investors fail because they do the opposite - they sell winners quickly in order to lock in profits, while they hold on to losers because they hope that they'll turn around.

Financial leverage refers to assuming additional risk in order to maximize your buying power. Options provide leverage by allowing their holders to control more shares than they can afford to buy. The risk is that option holders have very little equity (intrinsic value), and if the value of the underlying stock turns against them, their entire investment can be wiped out. More commonly, leverage refers to the use of debt. If you have $5,000 in cash, you can either buy $5,000 worth of stock, or you can borrow up to $5,000 more from your stockbroker to buy a total of $10,000 worth of stock on margin.

When you place an order to buy or sell a stock, you can either place a market order or a limit order. A limit order allows you to set the maximum price you're willing to pay when buying, or the minimum price you're willing to accept when selling. You can normally state the duration of your limit order, either a day order (cancelled at the end of the day) or a GTC (good 'til cancelled).

A load is a fee associated with mutual funds. There are front-loads, in which you pay a set percentage of your investment upon buying into the fund, and back-loads, in which the load isn't paid until you sell. Some back-loaded funds cancel the load if you hold the fund long enough. And of course, there are no-load funds, in which no loads are charged.

The opposite of short, to be long means to own a stock or other security.

The use of borrowed money from a stockbroker to buy stocks. There are limits and regulations as to how much you can borrow and what stocks you can buy, and your broker will also charge you interest on your borrowings. Many people like using margin because it gives them financial leverage.

Market capitalization is the total value of all of the company's shares. Market cap can be determined by multiplying the share price by the number of shares outstanding, and theoretically, this would be the cost of buying the entire company. In reality, acquirers almost always pay a premium to takeover another company.

A market maker or specialist is someone (sometimes a computer) who makes a market in a given stock by buying shares from sellers and selling shares to buyers.

This is the price-to-earnings ratio of the broad market, most commonly exemplified by the S&P 500. The market multiple is used for comparison purposes in order to gauge if a given stock, sector, or industry is appropriately priced.

When you place an order to buy or sell a stock, you can either place a market order or a limit order. A market order executes more quickly than a limit order, because it accepts the current bid (sell) or ask (buy) price of the market maker.

The stated goal of public corporations is not to generate profits, but to maximize shareholder value. This means raising the stock price and/or paying dividends. Since share prices look deep into the future, maximizing shareholder value is a more long-term goal than mere profitability.