Trading is risky, and most day traders lose money. Read our full disclaimer.

Warrior Trading Blog

Prospectus Definition: Day Trading Terminology


A prospectus is a formal legal document that provides details about a public investment offering. It is a legal prerequisite for a public investment offering in all advanced modern economies, and needs to be filed with the appropriate regulatory body or bodies.

Prospectus Types

While there are a large variety of prospectus types, they generally fall into 3 categories in advanced modern economies.

• Preliminary Prospectus

A preliminary prospectus is an initial offering document submitted by the issuer of a security. It includes most of the relevant details concerning both the overall business and the actual offering in question.

• Final Prospectus

The final prospectus contains the complete details of the offering itself, such as the number of securities being offered and the transaction price. The final prospectus is delivered after the offering has become effective.

• Fund Prospectus

A fund prospectus is a document outlining the relevant details of a mutual fund offering, including objectives, risks, distribution policy, performance, investment strategies, expenses and fees, and a fund management outline.

A Common Example

While no two are exactly alike, they tend to share many similar features and a general boilerplate structure.

A common example will include the name of the company that is the issuer of the stock or the manager of the mutual fund and the type and number of the securities that are being sold or the shares that are being offered. A prospectus will also detail whether the offering is private or public, the remuneration fees for any underwriters of the sale and the names of any of the company’s principals.

The prospectus will close with a succinct summary of relevant financial information for the company, the state of appropriate regulatory approval for the offering and any additional relevant information to the offering.

Mutual Fund Prospectus Fees

The fees involved in the operation of a mutual fund are given a prominent section near the beginning of all mutual fund prospectuses. Since the fees involved in the operation of a mutual fund are so critical to the performance of the fund, they are presented in exhaustive detail so that investors can easily find and evaluate them in a mutual fund prospectus.

Prospectus Risks

The risks involved in an offering, and the underlying company when applicable, are given a prominent position in a prospectus, both as a regulatory requirement and so that the offering party is protected from accusations that they attempted to conceal pertinent information or mislead investors in some way.

The risk section often details the experience of the company’s or fund’s management, the age of the fund or company and their capitalization. The risk section also usually includes a detailed table of current equity ownership, so potential investors can gauge the level of commitment of the company’s principals.

Prospectus and Trading

They are a valuable source of information for traders who are looking to trade the shares of a company or mutual fund. Even long after the actual offering that a prospectus details, traders can still use the information contained within to make trading decisions concerning the relevant company or fund.

In particular, a prospectus may contain key details about a company or offering that receives less focus in quarterly and annual reports, or information that private companies are not otherwise required to disclose.

Traders performing fundamental analysis or due diligence in the equity market gain a critical advantage when they use information that other market participants fail to discover or account for, and a prospectus is an excellent source of this type of additional information and insight.

Final Thoughts

A prospectus is a key source of additional information and insights that might not otherwise be available to traders. The regulatory disclosure requirement often forces a company or fund to share information or acknowledge risks that they would prefer to ignore or brush over.

Equity traders should make a habit of seeking out these key sources of information, such as a prospectus, that can give them a critical edge over other traders. The easy availability and rich contents of a prospectus makes them one of the best sources of critical equity information available to modern traders.