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Fed, The – The US Federal Reserve. The central banking system and monetary authority of the United States, made up of regional Federal Reserve Banks and the Federal Reserve Board of Governors, which supervises and examines state-chartered member banks, regulates bank holding companies, and is responsible for the conduct of monetary policy. The Fed sets the interest rates for the country’s debt. It is one of the most important driving forces in the movement of the markets and economy in the US and the World.
Federal Open Market Committee (FOMC) – a policy-making group within the Federal Reserve System that directs the open-market operations of the system.
Fill Or Kill (FOK) – an order type that means the order is to be cancelled if it cannot be executed in its entirety immediately.
Fiscal Year – the 12-month accounting period of a business. The majority of firms use the calendar year, but some do not. Retailers, for example, often end the fiscal year at the end of January so that all the impact of the seasonally strong Christmas season can be included in the same accounting period. The fiscal year is usually described by the year in which the final month falls. If the year ends in March of 2000, it would be called fiscal 2000, even though a majority of the months fall in 1999.
Flipping – the practice of buying shares in an IPO and then selling them very soon after the issue begins trading.
Float – the number of shares, or the market value of the number of shares, that are available for trading. Shares held by company insiders or affiliated companies are not included in the float. Holdings by individual investors and by institutional investors are included. The float is relevant to understanding how “liquid” the market in a stock is likely to be. The share price of a company with a large market cap may behave differently than if the float were larger.
Follow-On Offering – as distinct from an Initial Public Offering, the Follow-On Offering is the sale of shares to the public after the company is already public.
Free Cash Flow – the term has no set meaning and it is not an “official” accounting term. The usual meaning is the cash flow that a company has available for discretionary purposes, after making all of its required cash payments. Almost all users will start with net income and add back depreciation and deferred taxes, and subtract out either all capital spending or a portion of capital spending deemed necessary to maintain the company’s earnings power. Some users subtract dividends paid, others do not. Some users subtract changes in working capital, others do not. Some users subtract acquisitions, others do not. Some users subtract cash used to repay debt, some users add the cash received from new borrowings, and still others estimate the net change in debt that would have resulted from keeping debt at some constant ratio of revenues or equity.
Fundamental Analysis – security analysis based on fundamental facts about a company as revealed through its financial statements and an analysis of economic conditions that affect the company’s business. “Fundamentals” are the “real world” events like earnings, sales, management changes, market shares, mergers and acquisitions, lawsuits, and so on that drive stock prices in the long-term. Fundamental analysis is the work of understanding what these factors are and predicting how they may affect the stock in the future.
Futures Contract – a standardized agreement, traded on an organized futures exchange, for delivery of a specific security or commodity at a specified future date and at a specified price. The buyer of a futures contract, also called the long, has the right and obligation to receive the underlying commodity at some future date. The seller of the contract, also called the short, has the right and obligation to deliver the underlying commodity on a specific date in the future. Thus, both parties know exactly how much, say Treasury bonds, oil or wheat will cost them in six months or a year. If prices go up in the meantime, the long (who is entitled to pay the lower agreed-upon price) makes money and the short (who has agreed to deliver at the lower price) loses money. One reason people buy and sell futures contracts, therefore, is that they disagree on the future course of prices for an underlying asset and hope to profit as prices move in their anticipated direction. Another reason is that selling or buying the asset at a known price at a specific date in the future eliminates the risk of price fluctuations for someone who must buy or sell the asset in the future. A futures contract differs from an option because an option is the right to buy or sell, whereas a futures contract is the promise to actually make a transaction.
The precise terms of each futures contract are established by the exchange that sponsors trading in the contract. The standardization of contract terms is designed to promote liquidity, the ability to buy and sell quickly with low transactions costs.