New Hampshire
Secretary of State

Investor Education

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Investor Education

Securities Definitions

The following are a series of terms that you, as an investor, might find useful in your investing experience: 

After-Hours Trading 

After-hours trading refers to stock trading outside the traditional trading hours of the major exchange, such as the New York Stock Exchange and the Nasdaq Stock Market.  The traditional or regular trading hours have been for some time from 9:30 a.m. to 4:00 p.m. Eastern Time. 

Trading outside these regular hours is not a new phenomenon.  But it has generally been limited to high net-worth investors and institutional investors, such as mutual funds.  The emergence of private trading systems, known as Electronic Communications Networks, or ECNs, has allowed individual investors to participate in after-hours trading. 

While after-hours trading promises greater opportunities and convenience for individual investors, it also involves significant risk.  The after-hours market can be much more volatile and far less liquid.  Before considering an after-hours trade, be sure to educate yourself about the risks.

Day Traders 

Day traders rapidly buy and sell stocks throughout the day in the hope that their stocks will continue climbing or falling in value for the seconds to minutes they own the stock, allowing them to lock in quick profits.  Day trading is extremely risky and can result in substantial financial losses in a very short period of time.


The part of the net earnings, or profits, of a corporation that is distributed to its stockholders.  Dividends are declared by the board of directors, usually at regular intervals.  In the U.S., they may be paid in bonds or stocks of a company, in notes or in cash.  Holders of preferred stock must be paid their dividends before anything is paid on common stock.  Businesses being terminated may issue liquidation dividends.

Insider Trading 

Buying and selling shares of stock or other securities based on special knowledge not available to others, such as information about new products not yet public.  Insider trading is illegal.

Investment Banking 

Investment banking is a mutual fund that invests in high-yielding, short-term money-market instruments, such as U.S. government securities commercial paper, and certificates of deposit.  Returns of money-market funds usually parallel the movement of short-term interest rates.  Some funds buy only U.S. government securities, such as Treasury bills, while general-purpose funds invest in various types of short-term paper.  They became enormously popular with investors in the early 1980s because of their high yields, relative safety and high liquidity.  Much of the money-market growth came at the expense of banks and thrift institutions.  With the drop in interest rates in the late 1980s, many investors moved from money-market funds to stock mutual funds and other investments.

Initial Public Offering (IPO) 

IPO occurs when a company first sells its shares to the public.  The underwriters and the company that issues the shares control the IPO process.  They have wide latitude in allocating IPO shares.  The SEC does not regulate the business decision of how IPO shares are allocated. 

While smaller or individual investors are finding it easier to buy IPO shares through online brokerage firms, they may still find it difficult to buy IPO shares for a number of reasons.  The IPOs of all but the smallest of companies are usually offered to the public through an "underwriting syndicate," a group of underwriters who agree to purchase the shares from the issuer and then sell the shares to investors.  Only a limited number of broker-dealers are invited into the syndicate as underwriters and some of them may not have individual investors as clients.  Moreover, syndicate members themselves do not receive equal allocations of securities for sale to their clients.  The underwriters in consultation with the company decide on the basic terms and structure of the offering well before trading starts, including the percentage of shares going to institutions and to individual investors.  Most underwriters target institutional or wealthy investors in IPO distributions.  Underwriters believe that institutional and wealthy investors are better able to buy large blocks of IPO shares, assume the financial risk and hold the investment for the long term.

Money Market Funds 

Type of mutual fund that invests in high-yielding, short-term money-market instruments, such as U.S. government securities, commercial paper, and certificates of deposit.  Returns of money-market funds usually parallel the movement of short-term interest rates.  Some funds buy only U.S. government securities, such as Treasury bills, while general-purpose funds invest in various types of short-term paper. 

They became enormously popular with investors in the early 1980s because of their high yields, relative safety, and high liquidity.  Much of the money-market growth came at the expense of banks and thrift institutions.  With the drop in interest rates in the late 1980s, many investors moved from money-market funds to stock mutual funds and other investments.

Online Trading 

Although you may save time and money trading online, it does not take the homework out of making investment decisions.  To avoid costly mistakes, investors who trade online should understand how our securities markets work and their options in placing trades in fast-moving markets when slow downs occur.  The Internet allows individuals or companies to communicate with a large audience without spending a lot of time, effort or money.  Anyone can reach tens of thousands of people by building an Internet Web site, posting a message on an online bulletin board, entering a discussion in a live "chat" room or sending mass e-mails.  It's easy for fraudsters to make their messages look real and credible.  But it's nearly impossible for investors to tell the difference between fact and fiction. 

Over the Counter 

Method of buying and selling securities outside the standard.  The over-the-counter (OTC) market is composed of thousands of far-flung stock and bond dealers and brokers who negotiate most transactions by computer or telephone.  For the most part, dealers purchase securities for their own accounts and sell them at a markup.  Prices of many U.S. OTC issues are quoted on NASDAQ (National Association of Securities Dealers Automated Quotations), a computerized system.

Program Trading 

Program traders exploit price differences between stock-index futures and the stocks represented by such futures using sophisticated computer programs, simultaneously monitoring and making trades in the commodity and stock markets.  Program trading was widely blamed for the stock market crash on October 19, 1987.

Short Selling 

Short Selling in finance and commerce, form of speculation based on anticipation of a decline in the prices of securities and commodities.  Short selling occurs most frequently in connection with the sale of securities on stock markets.  In this type of transaction, a seller undertakes to deliver to a purchaser a number of shares of a stock at the price prevailing at the time of sale.  To effect the transaction, the seller, who does not actually possess the shares, borrows them from a broker, who receives a commission for services rendered.  Subsequently, the seller "covers" by buying shares and delivering them to the broker.  If the seller is able to buy at a lower price than he or she received, a profit is realized; conversely, if the seller finds it necessary to cover at a higher price, a loss is sustained.  The process of short selling on the commodity markets is similar. 


Buying and selling such items as securities, commodities or land in the hope of sudden increases in their value and often with the risk of sudden decline.  Speculation, along with margin trading, is believed to be the cause of the infamous crash of 1929. 


Investor Education

First Time Investors

Before you invest, consider your complete financial situation, looking at both your current and future needs.  In general, investors should avoid higher-risk investments unless they have a steady income, adequate insurance and readily accessible cash reserves in case of a loss and most important, are willing to accept risk to their principal.

Some Important Considerations:  

  • When you choose to invest your money, the final decisions are yours alone. The risk of the investment is also yours.
  • Risk and return go hand in hand.  Higher returns mean greater risk, while lower returns provide greater safety.
  • Be very suspicious of any claims that an investment will pay high returns without high risk.
  • If anyone guarantees your investment against loss, you should immediately contact the New Hampshire Bureau of Securities Regulation.
  • Never succumb to high-pressure sales tactics.  Be suspicious of anyone whose main goal seems to be getting you to turn over your money before you have fully evaluated the investment.
  • If any investment sounds too good to be true, it probably is.
  • Don't invest in anything you don't fully understand.
  • Always set aside some of your money for emergencies before you invest.
  • Consider getting advice from a trained and licensed professional.
  • Be selective in your investment choices.  Exercise  your right to say "No."
  • Develop a sensible investment plan and follow it.
  • Judge each company on its own merits.  Don't invest in a company just because it is part of a fast-growing or successful industry.
  • Never invest solely on the basis of information obtained from an unsolicited telephone call.
  • Beware of buying investments over the phone or the Internet from strangers.
  • Check the credentials of anyone who offers to sell you an investment.  Before you invest, you should always investigate the brokerage company making the recommendation, the salesperson and the investment product itself by asking questions and checking references.  The best place to start in protecting yourself against becoming a victim of fraud is to carefully select your brokerage firm and salesperson.
  • Before you invest, make sure your brokers, investment advisers, and investment adviser representatives are licensed to sell securities.  Always check and see if they or their firms have had run-ins with regulators or other investors.

Call the New Hampshire Bureau of Securities Regulation at (603) 271-1463 for information on any of the following: 

  • Licensing status and disciplinary history of broker-dealer firms;
  • Licensing status and disciplinary history of state representatives;
  • Licensing status and disciplinary history of investment advisers and their representatives; and
  • Registration of the investments (securities) involved.

OR visit the FINRA Regulation Public Disclosure Program
You should also thoroughly understand the investment, including the risks involved, before you invest.  Contact the appropriate regulatory agencies.  Visit your local bookstore or library and educate yourself on appropriate investment subjects that interest you.  Be informed and certain of what you are buying before you invest.

Protect Yourself Against Fraud
When you are contacted by phone or in person to make an investment, you should ask the following questions and write down the responses:

  • What is the name of the caller, the firm's name and their phone number?
  • How did you get my name?
  • Where is your office located?
  • How long has your company been in business?
  • Are you and your firm licensed with the New Hampshire Bureau of Securities Regulation to sell this investment?
  • Is the investment registered with the New Hampshire Bureau of Securities Regulation?
  • What are the risks of this investment?
  • Can you send me an offering document or prospectus that explains the details of this investment?
  • How do I liquidate this investment and how long will it take?
  • Would you explain this investment to a third party, such as my attorney, accountant, investment adviser or banker?
  • Can you tell me the name of your firm's principals and officers?
  • Can you provide references?
  • Are these investments traded on a regulated exchange?  If so, which one?
  • What governmental or industry regulatory supervision is your firm subject to?
  • How much of my money would go to commissions, management fees and the like (now and in the future)?
  • If disputes should arise, how will they be resolved?

Asking these questions is the beginning of the investigatory process.  But remember, a skillful presenter will have answers to all of your questions.  It is your responsibility to verify the information you receive in response to the questions asked above.  You can determine if some of the information you have been given is accurate by calling the relevant numbers and firms listed.

Setting Your Investment Goals
Ask yourself, "What do I want to accomplish through my investments?"  For most investors, the following investment goals or objectives, or some combination of these, provide an initial answer to that question:

This objective reflects a conservative investment philosophy with minimal risk of loss of the original investment (the "principal").

An "income" objective is achieved by purchasing investments that provide a stream of income through regular payments, which may or may not decrease the invested principal.

This category refers to investing for long-term growth or appreciation in market value.  Growth investments carry a higher risk than either safety - or income - oriented investments.  Growth investments generally provide little or no dividend income.

Speculative investments carry a higher than average possibility of loss.  This strategy often includes short-term trading of new or unproven companies' stocks or options.  Although there is the possibility of higher and faster rewards, speculative investments also are high risk, meaning there also is the possibility of larger and faster losses of some or all of your principal.

Balance "risk" and "return" to meet your goals
As an investor, you choose your investment goals with an emphasis on one or more of the above categories.  You may also wish to allocate portions of your investment portfolio to more accurately express your investment goals.

Of course, setting a goal and reaching it are two very different things.  You may need professional assistance to realize your investment goals and to achieve your financial objectives.

If you choose to work with a broker, communicate your investment goals and financial objectives clearly.  Put them in writing and keep a copy for your own records.

Remember, the more money you want to make from your investments, the more risk you must be willing to take.  Risk means that you may lose all or part of your principal.  If a high level of risk makes you uncomfortable, select your investments accordingly.

The basic concept in securities law regarding whether a recommended investment is appropriate for a particular investor is known as "suitability."  Any investment professional should be able to articulate why an investment recommendation is suitable for your needs.  Do not be afraid to ask many questions, no matter how basic they may seem to you.

There are many sources of information about any company in which you may be contemplating making an investment.  If you don't know where to look, start by contacting the New Hampshire Bureau of Securities Regulation.  Securities must be registered or exempt from registration in each state where they are sold.

Information about the company may be available to the public.  You should also ask your brokerage firm or investment adviser to assist you in gathering information about the company in which you may invest.

Most companies whose stock is traded "over the counter" or on a stock exchange are required to file "full disclosure" reports on a regular basis with the Securities and Exchange Commission (SEC).  These comprehensive reports are available for a modest copying charge by writing to:

Public Reference Room, Mail Stop 1-2
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C.  20549-1002

Pay attention to business and financial newspapers in your area.  Often, these periodicals provide in-depth coverage about a specific company or segment of the industry.  Check with your local reference librarian for assistance in identifying appropriate investment-related materials.

One of the very best ways for an investor to protect himself or herself is through adequate information, education and consultation of available resources.

Your investment responsibilities don't end once you've selected a broker and an investment.

Some of the more important responsibilities are:

  • Keeping your securities in a safe place;
  • Maintaining your records; and
  • Monitoring your investment account.

If something goes wrong, it's important to recognize the problem quickly and take appropriate action.

How to Keep Your Securities Safe 
When you purchase shares of stock or a bond, you may receive a certificate representing your ownership.  These valuable documents should be kept in a safe place.  It is costly and time-consuming to replace a certificate if the original is lost or destroyed.

If you purchase stock through a brokerage firm, you usually have three choices regarding how your stock certificates are handled:

A certificate showing the number of shares purchased may be made out in your name and delivered to you.  When you sell the stock, you must in turn endorse the certificate and deliver it to your broker.

The stock certificate may be held in your name at the brokerage firm.  Although the certificate must still be endorsed when you sell, this option eliminates storage concerns.

A very common practice is for your broker to hold the stock certificate in "street name".  The brokerage firm will be listed as the shareholder of record, even though you are the actual owner.  The broker must forward to you any mailings by the corporation, such as annual reports and proxy materials.  This may cause some delay.  However, the transfer process is much simpler when you sell the stock.  If you elect to have your securities held in street name, you can request that dividends or interest payments be forwarded to you.

Be sure to discuss these options with your broker and decide which is right for you.  Ask whether the broker charges additional fees for holding stock in the street name, and ask about any related custodial fees.

Monitoring Your Account 
After you've invested, you should receive periodic account statements.  You will also receive confirmations for each trade as it occurs.  Don't throw them away.  Read each confirmation and account statement, and make sure that they accurately reflect the trading activity that you have authorized in your account.  Check to see how much of a commission you were charged.  You should expect to be informed in advance of any increases in charges, such as commissions and custodial fees.

As you monitor your confirmations and account statements, follow up immediately on anything that you do not understand.  Investors who fail to do so are sometimes said to have "ratified" transactions that otherwise might not have been appropriate or authorized.  This can make pursuing your legal options that much more difficult.  If you do not receive prompt assistance from the broker-dealer, contact the Bureau of Securities Regulation.

Designate a file folder for storing all investment-related information.  As soon as you've received and reviewed the confirmation slips and monthly statements from your broker, file them.  If you have a dispute with your broker regarding your investment, this file may be invaluable.

What to Expect From Your Broker 
When you fill out your new account form, you provide the broker with information about your financial situation, your investment objectives and the level of risk you are willing to take.

You have a right to expect your broker to follow your instructions and to recommend appropriate investments.  As noted above, securities regulators use the term "suitability" to refer to the question of whether a broker's investment recommendations are appropriate for a given investor.

Although you are not protected from a decline in the value of securities due to normal market risks, you may have certain legal rights if a broker's recommendations were unsuitable based on your financial objectives and situation.

Commissions and Churning 
A broker's earnings are based on sales commissions or markups.  The more buying and selling a broker does for each customer, the higher his or her income.  Unnecessary buying and selling is called churning.  If you suspect that certain recommendations have been unsuitable or that your account is being churned, immediately contact the Bureau of Securities Regulation.

If You Have Problems 
Regardless of how careful you are in selecting a broker, problems may still occur.  Contact your broker at the first sign of trouble and clearly communicate your concerns.  Ask your broker for a written reply explaining the handling of your particular problem.  You also should file a written report of your problem with the home office of the broker's firm.  Call the Bureau of Securities Regulation for the appropriate contact person and address.

If you aren't satisfied with the result, or if this process takes more than 7 to 10 days to complete, contact the Bureau of Securities Regulation.  Although your initial contact may be over the phone, we may ask you to document your complaint in writing.  You should be prepared to list specific details of your investment, including dates, amounts and types of securities.  Often, copies of your account statements or other documents attached to your complaint will help to explain the situation.

Always keep a copy of any complaint letters you send and the responses you receive.  These documents may be of great benefit to you later.

You may also need to consider consulting a private attorney for assistance in resolving a securities dispute.  While regulators will investigate for violations of securities laws and rules, regulatory agencies cannot directly represent investors.  In some instances, the only way to recover your investment may be through a private lawsuit or arbitration proceeding.


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