Glossary U

The financial world is full of jargon - i.e. strange words no-one understands. Here we try to explain some of the many technical terms.

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U

Underlying Security

The stock, bond, index, or other financial instrument upon which a derivative such as an option is based. It is the underlying security that is subject to being bought or sold upon exercise of the option.

Under-Fitting

Not properly explaining the known data or facts. An inadequate model.

Upgrades/Downgrades

Analysts make buy/hold/sell recommendations for the stocks they follow. An upgrade is a change from a sell to a hold or buy, or from a hold to a buy. A downgrade is a change from a buy to a hold or sell, or from a hold to a sell.

Since most analysts recommendations are of the BUY variety, and there is always pressure on them to keep 'talking the happy talk', whenever there is a downgrade it is very likely to trigger a sizeable reaction; experienced investors having already taken account of these customs will tend to panic, as e.g. HOLD in analyst-speak actually means SELL and so on. If an analyst ever makes a SELL recommendation, chances are the company is about to go bust.

Bond rating agencies, e.g. Standard & Poor also rate corporate bonds along a sliding scale which measures the credit-worthiness of the company; downgrades of a company's bonds can also trigger a violent reaction, e.g. lots of investment funds are only allowed to buy bonds of a specific quality, if there is a downgrade, then a lot of automatic selling is triggered. Downgrades can therefore cause a cascade effect, with serious consequences.

User Interfaces and Software Design

Too many choices will confuse the user.
People communicate verbally.
People understand visually.
Mathematical equations are a private language for efficient communication between scientists; never expose the general public to an equation.
If you show it, anyone can understand it.
If it is interactive, people will learn faster.
No normal person ever reads the manual.
If it needs a manual, then it is too complicated.
Invalid choices should be made impossible.

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