The Finance Dictionary

This information provides users with thorough and reliable meanings to all the most common, and even uncommon, financial terms

Financial Terms Beginning With The Letter W

Warrant

The right to purchase shares from the issuing entity, at a set price, usually for a specified period of time.

Wash trade

A wash trade is the activity of buying and selling the same investment in a short period of time (usually on the same day), with no change in beneficial ownership. Wash trades are illegal when they are done to artificially inflate the trading volume or market value of a stock.

A legal use of wash trades that is beneficial to investors, is the washing of trades of foreign currencies, such as when trades which normally settle in US$ are made in a Canadian$ account such as an RRSP. These wash trades are used to eliminate the exchange rate difference between purchases and sales of US$ investments.

Weighted average cost

When an investor purchases shares in a single corporation on more than one occasion, the weighted average cost per share is calculated as the total cost of all the shares divided by the total number of shares purchased.

Example: Investor A purchased shares of Corporation A on three different occasions:

  • Jan 15th - 100 shares @$20 each plus $29 commission = $2,029
  • Feb 10th - 200 shares @$18 each plus $29 commission = $3,629
  • Feb 17th - 100 shares @$19 each plus $29 commission = $1,929

Total cost = $7,587, divided by total shares (400) = weighted average cost of $18.9675/share.

If the investor subsequently sells 100 shares, then the cost basis allocated to the sold shares (for tax purposes) would be $18.9675 x 100, = $1,896.75. The cost basis of the remaining 300 shares would be $7,587 - $1,896.75 = $5,690.25.

Working capital

Current assets minus current liabilities. This reflects the company's ability to cover its short term debts.

Working capital ratio

Also called current ratio, this is the current assets divided by the current liabilities.