Category: Financial Terms

Overweight: Meaning, Uses, and Pros & Cons What “Overweight” Means In investing, “overweight” describes holding a larger-than-normal share of a particular asset, sector, or asset type in a portfolio relative to a benchmark or a predefined allocation. It can also be an analyst recommendation indicating an expectation that a security will outperform its peers over…

Overvalued: Definition, How to Identify It, and Investment Implications What “overvalued” means A stock is considered overvalued when its market price exceeds what its fundamentals—such as earnings, cash flow, or growth prospects—would justify. Overvaluation often reflects investor optimism, speculation, or temporary improvements in reported results rather than sustainable business performance. Whether a stock is truly…

Overtrading: Definition, Causes, Types, and How to Avoid It Key takeaways * Overtrading means buying and selling too frequently. For brokers, excessive trading to generate commissions is illegal (known as churning). For individual traders, overtrading is a behavioral risk that can destroy returns. * Consequences include higher transaction costs, poorer performance, increased emotional stress, and…

Oversupply: Definition and Key Takeaways Oversupply occurs when the quantity of a product on the market exceeds the quantity consumers are willing to buy at the current price, producing a surplus. It commonly results from overproduction, misread demand, or prices set too high for consumers’ willingness to pay. Key takeaways: * Oversupply = more product…

Oversubscription Privilege — Overview An oversubscription privilege is an option extended to existing shareholders during a rights (or warrant) offering that lets them request extra shares beyond the number their basic rights allow. If some shareholders do not exercise their rights, the oversubscription privilege permits shareholders who want more to purchase remaining, unclaimed shares. How…

Oversubscribed: Definition, Example, Costs & Benefits Key takeaways Oversubscribed means demand for a new issue of shares exceeds the number of shares available. Underwriters can respond by raising the price, offering more shares, or both. Oversubscription can raise more capital for the issuer but may push prices above fundamentals, creating short-term volatility and potential losses…

Oversold: What It Means for Stocks An asset is described as oversold when its price has fallen to levels that appear low relative to recent price action or typical fundamental metrics. Oversold conditions suggest the potential for a price bounce, but they are not guarantees—prices can remain depressed for extended periods. Key takeaways “Oversold” is…

Overshooting What is overshooting? Overshooting (the exchange rate overshooting hypothesis) explains why currency exchange rates can be much more volatile than goods prices. It attributes this volatility to “sticky” goods prices that adjust slowly, while financial prices—particularly exchange rates and interest rates—respond quickly to shocks such as changes in monetary policy. Key points Exchange rates…

Overseas Private Investment Corporation (OPIC) The Overseas Private Investment Corporation (OPIC) was the United States’ development finance institution (DFI) from 1971 until its consolidation into the U.S. International Development Finance Corporation (DFC) in 2019. OPIC’s mission was to mobilize private capital to promote economic development in emerging markets while advancing U.S. foreign policy and national…

Overreaction: What it Is, How It Works, and Examples Definition An overreaction is an extreme emotional response to new information that pushes asset prices away from their intrinsic value. In markets this shows up as securities becoming excessively overbought (pushed too high) or oversold (pushed too low), driven more by fear, greed, and cognitive biases…

Overnight Trading Key takeaways Overnight trading occurs between an exchange’s official close and its next open, extending premarket and after-hours sessions. Many U.S. brokers now offer expanded overnight windows (commonly ~8:00 p.m. to 4:00 a.m. ET). Liquidity is typically lower, bid–ask spreads wider, and volatility higher than during regular hours. Rules and available instruments vary…

Overnight Rate: Definition and Economic Impact Key takeaways * The overnight rate is the interest rate at which banks lend reserve balances to one another for one business day. * It is typically the lowest short-term rate and is available only to highly creditworthy institutions. * Central banks target or influence the overnight rate to…

Overnight Index Swap (OIS) An overnight index swap (OIS) is a financial derivative used to exchange a fixed interest payment for a floating payment tied to an overnight interest rate index (for example, the federal funds rate, ESTR, or SONIA). The floating leg compounds the prevailing overnight rates over the swap period and the two…

Overnight Position: Definition, Risks, and Benefits in Trading Key takeaways * An overnight position is any trade left open past the end of the trading day. * Day traders usually avoid overnight positions; long-term investors typically hold them. * Overnight positions expose traders to after-hours events and, in some markets, rollover interest (credit or debit)….

Overleveraged: Meaning and Adverse Outcomes Key takeaways A company is overleveraged when its debt burden is too large relative to operating cash flows and equity, impairing its ability to pay interest, principal, and operating expenses. Overleveraging often triggers a downward financial spiral: borrowing to cover obligations, worsening cash flow, and increasing default risk. Common remedies…

Overlay (Overlay Portfolio Management) Key takeaways Overlay management coordinates multiple separately managed accounts to create a unified, efficient portfolio. It improves rebalancing, risk control, and tax optimization across accounts while simplifying reporting and communication. Common users include institutional investors and ultra-high-net-worth individuals with complex, multi-manager structures. Setup and compliance can be time-consuming; ongoing communication among…

Overlapping Debt: What It Is and Why It Matters Key takeaways * Overlapping debt occurs when multiple government jurisdictions share responsibility for the same debt tied to projects or services that cross their boundaries. * It increases a municipality’s effective debt burden beyond its direct obligations and can affect creditworthiness and borrowing costs. * Overlapping…

Overheated Economy An overheated economy is one growing faster than its sustainable capacity, producing high inflation and imbalances that often precede a slowdown or recession. It typically stems from excessive demand, asset-price bubbles, or policy and external shocks. Key characteristics Rapid economic growth coupled with rising inflation. Unemployment below its normal or “natural” rate (near…

Overhead Ratio: Meaning, Formula, and Use What it is The overhead ratio measures a company’s operating (overhead) expenses relative to the income that supports those costs. A lower overhead ratio indicates the company is spending less on day‑to‑day operating costs for each dollar of income, while a higher ratio suggests greater relative overhead. Formula A…

Overhead Rate The overhead rate allocates a company’s indirect (overhead) costs to products, services, departments, or projects. Overhead costs are not directly traceable to a single unit of production (for example, rent, utilities, administrative salaries, insurance, and general maintenance). Applying an overhead rate helps determine the full cost of producing goods or services and supports…

Overhead: Definition, Types, Examples, and How to Manage It What is overhead? Overhead refers to ongoing business expenses that are not directly tied to producing a specific good or service. These recurring costs keep a company operating but do not change in direct proportion to production volume. Examples include rent, utilities, insurance, and administrative wages….

Overhang — definition, calculation, implications, and types Overhang measures potential dilution to common shareholders from stock-based compensation or the market impact of a large block of shares. It’s typically expressed as a percentage and highlights the risk that additional shares or concentrated holdings pose to existing shareholders. Key takeaways Overhang quantifies potential dilution from existing…

Overfunded Pension Plans: What They Are and How They Work An overfunded pension plan holds more assets than are needed to meet its projected current and future benefit obligations. This surplus can signal strong plan health and provide investment flexibility, but it also brings tax, regulatory, and management considerations. Key points Overfunded = plan assets…

Overfitting: What It Is and How to Prevent It Key takeaways Overfitting occurs when a model fits its training data too closely and fails to generalize to new data. Overfit models show low bias but high variance: they perform well on training data and poorly on unseen data. Common prevention strategies include cross-validation, ensembling, simplifying…

Overextension: What It Means and How It Works Overextension occurs when an individual, business, or investor takes on more financial obligation or leverage than they can comfortably manage. It most commonly describes situations where debt repayment consumes a disproportionate share of income or when traders use excessive margin that amplifies losses. Key points Overextension typically…

Overdraft Protection Explained What is overdraft protection? Overdraft protection is an optional banking service that prevents transactions (checks, ATM withdrawals, debit-card purchases) from being rejected when your account balance is insufficient. When an overdraft occurs, the bank covers the shortfall by transferring funds from a linked backup source or by extending a short-term credit, allowing…

Overdraft: Fees, Protection, and How It Works What is an overdraft? An overdraft occurs when a bank allows transactions to go through even though an account lacks sufficient funds. It functions as a short-term loan from the bank to cover payments that would otherwise be declined or returned. Explore More Resources › Read more Government…

Over-Collateralization (OC) What it is Over-collateralization occurs when a loan or security is backed by collateral whose value exceeds the amount owed. The excess collateral acts as a cushion against losses if borrowers default, lowering credit risk for lenders or investors. Example: A business borrows $1,000,000 and pledges equipment worth $1,200,000 — the loan is…

Overcast What is an overcast? An overcast is a forecasting error that occurs when an estimated metric (for example, sales, cash flows, production output, or net income) is higher than the actual realized value. Overcasting results from overly optimistic inputs, incorrect assumptions, or unforeseen events that reduce outcomes below expectations. Explore More Resources › Read…

Overcapitalization: Causes, Effects, and Remedies Overcapitalization occurs when a company’s total issued capital (debt plus equity) exceeds the value of its assets or the capital required to generate sustainable returns. In other words, the company’s capitalized value is higher than its market value, producing unsustainably low rates of return and placing pressure on earnings. Key…

Overbought What is overbought? “Overbought” describes a security whose price has risen sharply and is perceived to be above its fair or intrinsic value. This condition most often signals that selling pressure may increase and a price correction or consolidation could follow. Overbought is not a certainty of reversal — strong trends can remain overbought…

Overallotment: Definition, Purpose, and Example What is an overallotment (greenshoe)? An overallotment, commonly called a greenshoe option, is a provision that lets underwriters sell up to 15% more shares than originally planned in an initial public offering (IPO) or a follow-on (secondary) offering. The option can typically be exercised within 30 days after the offering….

Overall Turnover: Meaning, Measurement, and Why It Matters What is overall turnover? Overall turnover is a company’s total revenues (gross sales) over a specified period. The term is commonly used in Europe and Asia; in the United States the same concept is usually called revenue or sales. How it’s used As a headline measure of…

Overall Liquidity Ratio: What It Is and How It Works The overall liquidity ratio measures a company’s ability to meet its outstanding liabilities using its available assets. It is most commonly used in the insurance industry and by financial institutions to assess solvency and financial health. How it’s calculated Overall liquidity ratio = Total Assets…

Understanding Over-the-Counter (OTC) Markets Key takeaways * OTC markets facilitate direct trading between parties without a centralized exchange. * They provide access to a broad range of securities—including foreign shares and customized derivatives—but typically have lower liquidity, less transparency, and higher risk than exchange-traded markets. * U.S. OTC trading is organized into tiers (OTCQX, OTCQB,…