23 September 2015
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After a number of requests to publish a glossary of terms to help explain a number of key market terminologies, we have done just that.
There are a lot! So we will be breaking this glossary down in order to allow you to read and digest in smaller pieces, rather than overwhelm you with a huge list.
So today’s post is looking at all terms A to C. Once we get to Z we will also put up a downloadable PDF containing the full glossary for you to save and refer to whenever you need.
Advisory Stockbroking: This phrase describes the situation where you are the manager of your own portfolio, with a regulated financial professional providing advice on the construction and allocation of the portfolio, as well as providing individual stock recommendations.
AIM: This is the Alternative Investment Market. A subsidiary of the London Stock Exchange, this is where companies that are growing or aren’t large enough to be listed on the main exchange will list here, due to the entry requirements not being as specific as a full exchange listing.
Alpha: The amount of added value that a portfolio has based on stock picking, relative to its comparable benchmark’s return, when adjusted for risk.
Amortisation: In reference to an accounting term, this is where a company can reduce the value of its intangible assets over the amount of time the asset is expected to be in use.
Arbitrage: The act of buying in one market whilst selling in another to profit from the temporary difference in value, traders usually use leverage to magnify the return.
Ask Price: The price at which a security is offered for sale to a buyer. Ask = Buy price.
Asset: Any item that is owned, that has value.
Asset Class: This is a description which broadly covers investments with comparable characteristics. Examples include Equities, cash, bonds, and AIM.
Balance Sheet: A record of accounts which highlights a company’s overall worth, including assets, liabilities and shareholder equity at the time in which the report is created. Growth of a balance sheet has positive connotations with the company’s success.
Basis point (Bps): A term used to describe small percentage changes. 1 basis point is one one-hundredth of one percent. 1 basis point = 0.01%
Bear: Investor or investors who believe that the value of an individual stock or market is set to depreciate.
Bear Market: Traditionally, this term describes a market which has fell by 20% in value; it is a way to label a market which has been losing value for an extended period of time.
Beta: This is a measure of volatility of a portfolio or single stock in comparison to its relative benchmark. The higher the beta rating, the more volatile the stock or portfolio is. A rating of one indicates volatility will be higher than that of the Benchmark.
Bid Price: The price at which a security will be sold to a buyer. Bid = sell price.
Black Monday: Monday 19th October 1987, huge falls in market value on Wall Street triggered falls in markets around the world.
Blue Chip: A company with a long-established reputation which is considered stable. The highest value chip in poker is where its name comes from.
Bond: A type of loan or ‘debt’ made by a lender, to a borrower. Some bonds are publically traded and are issued by governments, national organisations and companies for a set time period. Interest is paid to the bondholder usually biannually at a fixed rate and can derive what ‘fixed income’ portfolios are made from. Bonds usually have a maturity date where the original amount leant to the borrower is paid back, in full.
Bond Yield: A bond yield is the percent amount an investor will expect to receive in income payment for purchasing the bond.
Book Value: The Net asset value of a company as calculated by a company’s total assets minus their intangible assets and liabilities.
Breakeven: When used to describe investments, this is the point where an investment in to anything leaves you with neither a profit nor loss, when all costs are factored in. In some instances, breakeven point can be initial targets for investors.
BRICS: An acronym which is made up of the four largest emerging markets globally: Brazil, Russia, India and China. A recent addition has also included South Africa.
Bull: Investor or investors who are confident that the value of an individual stock or market is set to appreciate.
Bull Market: The inverse of a bear market, traditionally an expression given to a market which has risen by 20% in value. It is a way to describe a market which is increasing in value over an extended period of time.
Buy Stop Order: To buy a stock that is at a price above the current offering price, the order is executed when the market price touched or goes through the entry price, making this the ‘buy stop’.
Capital: The word used to describe wealth, in the form of money or other assets owned, available for activities such as starting a company or investing in the stock market.
Capital gains Tax: A type of tax levied on capital gains incurred by individuals and corporations, when an asset is sold at a higher price than what was an original purchase price.
Cash Flow Statement: An accounting statement to summarise the amount of cash a business has generated over the previous 12 month of operation. It will include operating activities (sale of goods and services) cash flow, investing activities (buying or selling of assets) and financing activities (stock sale, borrowing). Cash flow statement is one of the building blocks of fundamental analysis research.
Charting: The act of investors monitoring a stock’s current and past performance to create a forecast predicting where the future value of a stock may go. Strategies are developed around certain patterns found on charts (see technical analysis)
Closed Ended Fund: This is an investment company which is unable to issue further securities to meet investor demand. Instead, they have a fixed number of shares which are traded between investors on a public exchange. They are exempt from capital gains tax, and unlike an open-ended fund, they are permitted to borrow money.
Compliance: In simple terms, compliance is a state of being in accordance with established guidelines or specifications, or the process of becoming so. For financial services, the compliance body which regulates finance actions is the FCA : more can be found here.
Compound Interest: The term to describe earning interest on the principal value and then interest earned on that interest earned, over a given time period. £5,000 at 10% in one year becomes £5,500, in the second year, you will have £6,050.
Consumer Price Index: The main measure of inflation, this is an index which is encompassed by everyday goods and services : it measures the change in prices of a standard basket of goods consumed by a typical family over a month. Central banks often use this index to help determine their interest rate decisions.
Contract for Difference: A high risk derivative contract which allows you to capture and profit from the price movement of a stock either up or down, without ever owning the underlying asset. You will then profit (or loss) from the difference between the points the contract is opened to when it is then closed. Gains are taxable, and will use margin and leverage to empower returns.
Correction: When describing the stock market, a correction is a reverse movement usually negative of at least a 10% fall in value of a security, or index. Corrections are usually temporary price declines interrupting a price uptrend. They can however progress in to bear markets, then recession.
Correlation: This is a word to describe how similar the movement of two or more assets is in relation to the other. A highly correlated set of assets will mean that the price movement of one stock as an example, moves at a similar pace and volume as another comparative stock. Alternatively, negative correlation will be the concept that one stock’s price will move completely different in accordance to another.
Coupon: This is the rate of interest payable on a bond. It is fixed upon the date of issue and usually will stay at that rate throughout its lifetime. The term coupon has a historic background, where original bondholders would return a physical coupon upon the due date of their interest payment.
CREST: The UK’s electronic registration and settlement system for equity share trading, for UK and Irish registered equity and corporate stocks. This is where certificated shares will be dematerialised to.
I hope this is useful. Look out for the next instalment next week.
If I have missed anything out that you would like clarification on, please email me at editor@css:investments or leave your request in the comments section below.