See: Accounts Payable; Debenture; Dividend; Long Term Debt

LIFO
A method used to determine the cost of a good sold. In making this evaluation, the method assumes that company's newest inventory (last in) is sold first (first out). When prices are rising, a company using the LIFO method will have lower gross profits and taxable income because the cost of goods sold will be higher (the newest inventory was costlier to produce).

See: First In, First Out; Inventory Turnover

Lift
Investment lingo used to indicate a rise in securities prices as measured by the Dow Jones Industrial Average or other market averages. A lift is usually caused by good economic or business news.

See: Bull Market; Dow Jones Industrial Average

Limited Discretion
An agreement whereby a client allows their broker to make certain types of transactions without first notifying the client. For example, the broker will sell an option position that is about to expire when it is in-the-money.

See: Discretionary Account; Discretionary Order; Expiration Date; In The Money; Options

Limited Liability
Condition in which an investor cannot lose more money than the amount that was invested.

See: Limited Risk

Limited Partner
An investor in a limited partnership who does not participate in the management of the partnership and have limited liability.

See: General Partner; Limited Liability; Limited Partnership

Limited Partnership (LP)
Organization that consists of a general partner and limited partners. The general partner manages one or more projects for which the organization was formed. Limited partners invest money into the project; their risk is usually limited to the amount that they invested, and they do not have any day-to-day responsibilities of running the partnership. Limited partners typically receive income, capital gains, and tax benefits while the general partner collects fees and a percentage of capital gains and income. Common limited partnerships are in real estate, oil and gas, and equipment leasing, but there are other kinds of projects.

See: Capital Gain; General Partner; Income Limited Partnership; Limited Partner; Venture Capital Limited Partnerships

Limited Risk
When buying options contracts, the amount of the premium paid. For example, the buyer of a call option cannot lose more than the premium even if the underlying security does not rise during the option's life. A buyer of a put option also cannot lose more than the premium even if the underlying security does not drop. Naked (uncovered) put writers are limited to the strike price less the option premium received. Naked call writers have unlimited risk as the value of a security can infinitely increase.

See: Call Option; Naked Option; Option Premium; Option Writer; Options; Put Option; Uncovered Option; Underlying Security

Limit Order
An order that instructs a broker to buy or sell a specified amount of a security at a specified price or at a better price. In the case of a buy, it will never be executed above the limit price. Conversely, in a sell, the order will never be executed below the limit price.

If the limit price is not within the current market quote, it is said to be "away from the market". The order is entered on the specialist's book beneath any similar orders received earlier. These similar orders are said to be "shares ahead of you". Thus, the limit order may not be executed immediately or only partially, or not at all.

See: Away From The Market; Limit Price; Orders; Specialist

Limit Price
The price that is set in a limit order. The price stipulates to the broker to execute the order only at the limit price or better.

See: Limit Order

Limit Up, Limit Down
The maximum price that a commodity futures contract is permitted to move in one trading day. In extraordinary circumstances, a future may move limit up or limit down for several days in a row.

See: Commodities; Futures Contract

LP (Limited Partnership)
Organization that consists of a general partner and limited partners. The general partner manages one or more projects for which the organization was formed. Limited partners invest money into the project; their risk is usually limited to the amount that they invested, and they do not have any day-to-day responsibilities of running the partnership. Limited partners typically receive income, capital gains, and tax benefits while the general partner collects fees and a percentage of capital gains and income. Common limited partnerships are in real estate, oil and gas, and equipment leasing, but there are other kinds of projects.

See: Capital Gain; General Partner; Income Limited Partnership; Limited Partner; Venture Capital Limited Partnerships

Liquid Asset
Actual cash or an investment vehicle that is easily converitble into cash such as bank deposits and money market fund shares. A corporation's liquid assets, in reference to its financial statement, are cash, marketable securities, and accounts receivable.

See: Accounts Receivable; Balance Sheet; Corporation; Financial Statement; Income Statement; Liquidity; Money Market Fund

Liquidate
The process of selling securities or assets to obtain cash.

See: Sell Out Procedures

Liquidation
1: Upon a brokerage client's failure to meet a margin call, the closing of positions within the account. If the position is long, the security is sold. If the position is short, the security is bought.

See: Buy In; Close A Position; Long Position; Margin; Margin Call; Sell Out Procedures; Short Position

2: The dissolution of a company in which its assets are sold to pay its debts. Any remaining cash is distributed to its shareholders.

See: Asset; Debt; Junior Securities; Preferred Stock

Liquidity
The ability of a stock to absorb a large amount of buying or selling without substantial price movement. Institutional investors are inclined to seek securities that have liquidity so that their trading activity will not have an effect on the stock's market price.

See: Cash Equivalents; Institutional Investor

Liquidity Ratio
A gauge of a corporation's ability to meet short term obligations.

See: Current Ratio; Debt; Quick Asset Ratio; Short Term

Listed Option
A call or put option that has been authorized for trading on, and by, a registered exchange. Its proper name is an "exchange-traded option".

See: Call Option; Options; Put Option

Listed Security
A stock or bond that has been authorized for trading on, and by, a registered exchange. Each stock exchange has different criteria to determine a security's eligibility for listing.

See: Liquidity; Listing Requirements; Stock Exchange

Listing Requirements
Rules of eligibility that a corporation must meet before its stock can be listed for trading on an exchange. Each exchange has different requirements--the New York Stock Exchange (NYSE) being one of the stringent. Some of the NYSE's requirements are that a corporation must have:

* At least 1,100,000 shares publicly held with a minimum market value of $18 million;
* A minimum of 2,000 round lot shareholders or a total of 2,200 shareholders and;
* A minimum pretax annual net income of at least $2.5 million.

See: Market Price; New York Stock Exchange; Round Lot

Living Trust