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  • 3c1

    If an investment company has fewer than 100 investors and does not plan to make a public offering of securities, it may be entitled to fewer registration requirements from the SEC. This offering is referred to as a 3c1 structure, because it adheres to section 3c1 of the Investment Company Act of 1940. 3c1 exclusions commonly include charities, pensions, and many hedge funds.

  • 3c7

    If an investment company's U.S. clients are comprised entirely of qualified purchasers or accredited investors, it may be entitled to fewer registration requirements from the SEC. This offering is referred to as a 3c7 structure, because it adheres to section 3c7 of the Investment Company Act of 1940.

  • Absolute Return

    Absolute Return is the return of an asset over a set period of time. It is represented as a percentage of the amount invested, and shows the appreciation or depreciation that the asset sees over the time period. This is different from relative return, which compares returns to other measures or a benchmark value.

  • Accredited Investor

    According to the SEC, an accredited investor qualifies for one of the following exemptions and therefore is subject to fewer SEC restrictions. 1) They earn more than $200,000 per year or jointly $300,000 per year, 2) has a net worth exceeding $1 million, or 3) is an executive of a security being offered.

  • Accrued Interest

    The interest accrued, or built up, on a bond security since either the initial investment or latest interest payment. This is accumulated up to, but not including, the settlement date.

  • Accumulation (units or share class)

    Accumulation is the amount that is aggregated through investments. Accumulation can be boosted by reinvesting profits over the course of an investment horizon, because interest will compound.

  • Accumulator

    In reference to structured products, an accumulator contract is where the buyer speculates a company will trade between a certain price range (the range between the strike and the knock-out) within the contract period and the issuer bets that stock will fall below the strike price. The buyer holds an obligation to buy the shares at the strike price not the option to buy, whereas the issuer holds an obligation to sell shares at the strike price. Allows you to accumulate stock positions over time. (see also decumulator or structured products)

  • Acquisition

    The takeover of one corporation by another. Acquisitions can either be friendly or hostile - friendly being where the acquisition target expresses agreement to the takeover, recognising the mutual benefit, hostile being where share ownership is actively accrued to give the acquirer a majority stake in the target. The acquirer may offer existing shareholders a premium over market value for their stock to encourage them to sell. Acquisitions can form part of a growth strategy where it is more beneficial to acquire another business (in part or whole) rather than grow organically. Purchases are usually made in cash, shares of the acquiring company, or a combination of the two.

  • Active Management

    The style of investment management which seeks to apply a human element and level of skill and judgement in terms of security selection and asset allocation, rather than simply constructing a portfolio of stocks that replicates the market composition and therefore will result in similar performance, which is known as ‘passive’ investing.

  • Aggressive Investment

    An Aggressive Investment Strategy is a method of achieving high returns by making riskier investment decisions. Capital appreciation is the main goal of an aggressive investment method, so the asset allocation would focus more on stocks than fixed income or cash. Younger people with a longer investment horizon are better suited to aggressive investment strategies because they can better tolerate ups and downs in the market.

  • ALL

  • Alpha

    A measure of risk-adjusted performance that looks at the volatility of a fund and compares its risk-adjusted return to a benchmark index. The return of the fund in excess of that of its benchmark is the fund’s alpha - the reward for taking on that additional risk. Eg. Alpha of 0.5% means the fund outperformed the benchmark by 0.5%. A negative alpha, say -0.5% means the fund’s performance was 0.5% less than its benchmark, once the volatility had been considered.

  • Alternative Investments

    The standard asset classes are equities, bonds and cash. Alternatives tend to include everything else. These might include property - both public and private, private equity, venture capital, hedge funds, commodities, timber, water, distressed assets and such investment vehicles or collectibles, such as art, fine wine and stamps. They tend to be less liquid, require a greater level of specialism and are generally lowly correlated with the main asset classes.

  • Annual Percentage Rate (APR)

    The annual percentage rate (APR) is the interest rate over the course of a year. For instance, the APR on a mortgage would be the interest on the full amount of the loan. Financial institutions are required by law to show the APR, which reflects the loan’s real cost. This helps borrowers compare offerings among different lenders.

  • Annual Report

    The Annual Report is yearly financial statement issued by a business or foundation to offer information about its corporate activity, largely for the benefit of shareholders. The Annual Report contains data about company’s activities, liabilities, assets, profits, and expenses.

  • Annuity

    Any stream of regular, fixed payments which provide an income over a specified period of time. They are usually referred to in relation to pensions or life assurance products, based upon an initial lump sum investment.

  • Arbitrage

    Arbitrage is the practice of profiting from taking advantage of a price difference between two or more markets or assets, with no cost implication. Examples would include buying a share on one stock exchange and selling it on another for profit; or exploiting currency weakness, such as borrowing cheap currency with low interest rates, such as the yen, convert into a currency with higher interest rates and then buying various securities in that currency - the traders profit from the difference between their high yield investment and the low interest rate on the yen. This is called carry trade.

  • Ask Price

    The ask price, or offer price, is the price a seller of a good or security is willing to accept for that good or security. (see bid price)

  • Asset Allocation

    This is the process or strategy of choosing between the different kinds of potential assets to put into an investor's portfolio to align with that individual's goals, risk tolerance and investment horizon. Asset classes and their underlying securities, have different levels of risk and return, often performing differently in different market conditions. A well-diversified asset allocation strategy will use a mix of assets which satisfy a client’s appetite for risk while meeting their investment objectives.

  • Asset Classes

    Groups of securities that exhibit broadly similar features and behaviour in the market in order to categorise like with like. Every asset class is expected to reflect different risk and return characteristics, and will in theory perform differently in any given market environment. Examples include equities, bonds or commodities.

  • Autocallable

    Autocalls can automatically mature prior to the scheduled maturity date, if certain pre-determined market conditions are met.

  • Bailout

    A bailout is when an organization or individual will give money to a failing organization so that it is saved from any negative consequences of its collapse. The US government offered one of the largest bailouts in history in 2008 to financial institutions that suffered losses in the financial crisis.

  • Balance Sheet

    A balance sheet is a summary of the financial balances of a sole proprietorship, business partnership, corporation or other business organization, where a company's assets, liabilities and shareholders' equity are listed for a specific point in time.

  • Balanced Fund

    Funds which buy a combination of securities (mainly equities and bonds) to provide a combination of income and capital growth. These funds seek to avoid excessive risk to provide investors with relatively stable returns, and also manage downturns. In bull markets, balanced funds will typically not perform as well as funds with a higher equity weighting but they are seen as less risky, therefore ought to shield from losses in falling markets.

  • Balanced Investment Strategy

    A Balanced Investment Strategy is a portfolio allocation and management method aimed at balancing risk and return and provide diversification. Under a balanced investment strategy, portfolios are often split between equities and fixed-income securities.

  • Bankruptcy

    A legal declaration that an individual or a company cannot pay its creditors.

  • Basis Points

    Commonly written as ‘bp’, pronounced ‘bip, this is a unit equal to 1/100th of 1%. It is used to represent the change in a financial instrument - most commonly in terms of interest rates, equity indexes and the yield of a fixed income security. So 100 bps is equal to 1%.

  • Bear Market

    A bear market is one whereby the market’s prices are falling over an ongoing period of time. There is no set level of decline, but a common understanding is that a 20% fall over a two month period can be termed bear market conditions. A bear is a pessimistic investor who thinks a market will decline. (see also Bull market )

  • Behavioral Finance

    The process where psychology is applied to investing, in an attempt to understand more about why individuals make certain investment decisions.

  • Bellwether

    A stock or bond that is widely believed to be an indicator of its sector’s condition, usually a market leader in that space. Also known as a barometer stock.

  • Benchmark

    A standard against which the performance of an individual security, fund or fund manager is measured.

  • Beta

    A measure of the volatility of a security or fund relative to the market benchmark. A ‘beta’ of zero means the stock or fund will move independently of the market. Positive beta means the security's price will move in line with the market - both either up or down; negative beta means the price will move in the opposite direction - one will go up as the other goes down. (see also Alpha)

  • Bid Price

    The bid price refers to the price a buyer will pay for a stock. This is opposed to the offer, or ask price, which is the stated price the seller is willing to accept. The difference between the two is the bid/offer spread. The size of the spread indicates the liquidity of the market – the more liquid the market (such as currency), the narrower the spread.

  • Blockchain

    Blockchain is the digital ledger in which transactions make in Bitcoin or other cryptocurrency are recorded chronologically and public. Originally developed as the accounting method for virtual currency Bitcoin, blockchain now appears in a variety of commercial applications. As money continues to flow into blockchain-based startups, consumers should expect to see digital services and products becoming more mainstream in the near future.

  • Blue Chip Stock

    The term ‘blue chip’ comes from poker where the highest and most valuable playing chip is the blue one. This definition is used to describe large, well-known and financially sound companies. They tend to have stable earnings and no extensive liabilities, allowing them to pay healthy and growing dividends to shareholders in times of growth and decline. These stocks usually carry less risk than other types of stocks.

  • Bond

    A bond is a security under which the bond issuer owes the bondholders a debt. The issuer pays the holder interest or repays them the principal amount at the maturity date. Companies and governments may use bonds to generate financing for their operations. Unlike stocks, which are another type of security, bondholders are creditors of the company or other institution from which they hold the bond.

  • Bond Fund

    A bond fund is a fund that’s invested in bonds and debt securities. The bond fund will generally pay regular dividends, including interest on the securities and any capital appreciation. Bond funds include different types of bonds, including government, municipal, and corporate bonds, as well as convertible bonds and other forms of debt securities.

  • Bond Ratings

    A bond rating is a credit rating assigned to bonds. Companies like Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings will grade bonds based on their ability to pay back debt. Bonds with higher ratings, such as AAA or BBB are investment grade bonds and considered more secure. Non-investment grade bonds, known as junk bonds, usually range from BB to D and are riskier investments.

  • Bonus Share Issuance

    A Bonus Share Issuance, also known as a bonus issue or scrip issue, is when a company will issue additional shares to shareholders at no added cost. A company may issue these bonus shares when they don’t have enough cash and they need to maintain payouts to shareholders. The bonus shares will be issued according to the proportional stake the existing shareholder holds in the company.

  • Book Value

    The book value is an asset’s value according to a balance sheet, and is calculated by subtracting liabilities from assets. The book value can help investors determine the value of assets in case of liquidation, and decide if the stock is appropriately priced.

  • Bottom-up Investing

    Bottom-up investing is an investment approach where the investor will consider individual companies and their stocks in favor of larger market trends and economic situations. This is a strategy that considers microeconomics in order to identify companies that may do well despite unfavorable market or industry conditions.

  • BRIC

    BRIC is an acronym for Brazil, Russia, India, and China. It represents the notion that these quickly-growing emerging economies are on their way to becoming global economic powers. It is predicted that China and India will become the preeminent manufacturers while Russia and India will take over as the main raw materials suppliers.

  • Bull Market

    A bull market is an upward market trend. Either in an individual sector or security or in the broader market, a bull market means investors expect prices to rise, or prices are already rising. Bullishness indicates optimism that the higher prices and strong market trends will continue.

  • Business Cycle

    A business cycle represents economic fluctuation as measured by ups and downs in GDP, and is understood in terms of expansions and recessions in the economy. The business cycle is measure from a peak, or boom, to the trough, or bust, and returning to the peak. The length of a business cycle is unpredictable. The National Bureau of Economic Research in the US determines the beginning and end of each business cycle.

  • Buy-and-Hold

    Buy-and-Hold is an investment strategy where investors buy and hold stocks over long periods of time even as the market sees ups and downs and prices fluctuate. This is a passive method that counts on the idea that over a long period of time, investors will see returns even if there are shorter periods of downturns in the market.

  • Call Option

    A Call Option or “call” is a contract between a buyer and a seller where the buyer will have the right to buy an asset for a set price at a set time. If the price of the underlying asset rises, the investor gains a profit on the call option.

  • Callable Bond

    A callable bond, or redeemable bond, is a debt security that is subject to being bought back by the issuer before its maturity. This may happen if interest rates have fallen since the issuance of the bond, in which case the issuer may decide to refinance the debt and then issue the bond again with a lower interest rate.

  • Cap and Collar

    A Cap and Collar is an agreement whereby a lender agrees to put an upper and lower limit on the interest rate for the loan. This contract protects the borrower from interest rates outside of the anticipated range.

  • Capital Gain

    A capital gain is when the value of a capital asset is increased. The gain represents the difference between the purchase and selling prices, and becomes apparent only once the asset is sold. Capital assets are generally held for the purpose of generating profit.

  • Capital Gains Tax (CGT)

    A capital gains tax is a tax imposed on capital gains, which are profits that an investor gains after selling a capital asset at a higher value than the purchase price. This tax can be levied only once the capital asset has been sold, and not while the investor still holds the asset.

  • Capital Loss

    A capital loss is a decrease in a capital asset’s value. The loss occurs when an asset is sold at a lower value than its purchase price. A capital loss becomes apparent only once the asset is sold.

  • Capital Protection

    In a capital protection structure, an investor is protected from losses on investments. Under capital protection, the initial capital is generally completely protected, so the investor should receive at least the initial investment amount.

  • Cash Drag

    Un-invested capital, or capital invested in cash-equivalent securities, is sometimes referred to as “cash drag.” Since this capital has no market exposure, it may drag down portfolio returns over time because it has no upside potential.

  • Cash Flow

    The net amount of cash transferring in and out of a company is referred to as a cash flow, particularly as this money movement relates to the company’s liquidity. Positive cash flow reflects an increase in a company’s liquid assets, while negative cash flow reflects decreasing liquidity. A company’s income quality, or how liquid it is, can be determine by analyzing cash flow.

  • Cautious Investor

    Preserving capital is more important than high returns for a cautious investor. They will generally choose lower risk investments with higher liquidity so that they may sell immediately in case of a downturn. Funds that are attractive to cautious investors usually have a lower equity exposure.

  • Classified Shares

    When company equity is divided into different classes of common shares, such as “Class A” and “Class B”, this is referred to as classified shares or classified stock. One class will generally have advantages, such as voting privileges, over the others.

  • Closed-end (or closed- ended) Fund

    A closed-end fund is an investment system that is similar to a mutual fund in that a manager is responsible for the portfolio. In a closed end fund, a fixed number of shares are issued and cannot be redeemed from the fund. These are different from open-end funds in that investor demand does not drive the creation of new shares. The closed end fund gains capital through an initial public offering (IPO) and is traded on the stock exchange.

  • Closing Market Price

    The closing market price is the final price at which a stock is trading on any trading day. As most securities are traded after trading hours, though, the closing price may not accurately reflect its price after the trading day is over. Closing market prices help investors analyze the changes in stock prices over a period of time. Investors can also use closing prices to assess market sentiment for a particular stock by comparing closing prices at different points in time.

  • CoCo Bonds

    Convertible bonds are bonds that a bondholder can decide to convert into a portion of the company’s equity. The price of the stock into which the bond is converted is known as the strike price. CoCo bonds, short for Contingent Convertible bonds, are similar to convertible bonds because they have a strike price, but different because a predetermined event will trigger the conversion.

  • Collateralized Debt Obligation (CDO)

    Using a cash flow that the collateralized debt obligation structure pools, the CDO is an agreement to pay back investors in a predetermined progression. The pooled assets serve as collateral. The CDO is separated into slices, or “tranches”, which all have different amounts of risk associated with them. Senior tranches are safer because they have priority on collateral in case of default. These more senior tranches also have higher credit ratings and lower coupon rates.

  • Commodities

    Commodities, such as agricultural staples, natural resources, and precious metals are inputs used to produce consumer products. Investors can invest in or trade commodities in the financial market through futures and options or through ETFs and funds. Commodities need to meet minimum standards, or a basis grade when traded on an exchange.

  • Consumer Discretionary Sector

    The economy is split into various sectors in order to compare similar businesses. Consumer discretionary refers to non-essential goods and services, such as retail, media, consumer services, consumer durables, leisure and automotive and components. (Sometimes called <strong>consumer cyclicals</strong>)

  • Consumer Staples

    The consumer staples sector is made up of companies whose primary lines of business are food, beverages, tobacco and other household items - items that are non-cyclical in nature, being seen as essential items.

  • Contract for Difference (CFD)

    A contract for difference (CFD) is an over-the-counter agreement between two counterparties - a buyer and a seller - to exchange payments based on the change in price of an underlying instrument. Essentially the seller will pay to the buyer the difference between the current value of an asset and its value at contract time (if the difference is negative, the buyer pays instead of the seller).
    CFDs are derivatives that allow traders to take advantage of prices moving up (long positions) or down (short positions), used to speculate on the market they are trading in.

  • Convertible Arbitrage

    A market neutral investment strategy often used by hedge funds, which take a long position on a convertible security and a short position on the ordinary share by the same issuer. The idea is that the convertible is sometimes priced inefficiently, for a number of reasons, leading to price volatility, which can be then exploited by arbitrageurs.

  • Convertible/Convertible Bonds

    A note, bond or preference share that may be exchanged by the owner for ordinary shares, usually of the same company, in accordance with the terms of the issue.

  • Core Fund

    Funds designed to take a sensible, steady approach to generating returns for. These tend to be structured in two ways: one strategy is to combine equities and bonds into a single fund to achieve a steady return and well balanced asset allocation; the other is to combine growth and value stocks to diversify the risk from typical market movement. This strategy can also be called a blend or barbell since it can show characteristics of a pure growth or pure value. Core funds are designed to produce steady results over the long-term result, forming the ‘core’ of an investment portfolio. See also <strong>Satellite</strong>.

  • Corporate Bonds

    Bonds issued by a company to raise capital in order to expand or develop its business. (see <strong>Bond</strong>)

  • Corporate Tax Inversion

    Corporate tax inversion is when a company will change its legal address to one in a country with lower taxes, but keeps its operations in its original country, in order to avoid high taxes.

  • Correlation

    The extent to which assets behave in a similar manner under various market conditions. The more similarly they behave leads to a more <em>positive</em> correlation; the more they behave in opposite ways, the greater their <em>negative</em> correlation. Within a portfolio, if two assets have a high negative correlation, one will offer diversification from the other, lowering an investor’s overall risk.

  • Coupon

    This refers to the periodic interest rate paid to the bondholder during the time between when it is issued and when it matures.

  • Credit Rating

    This is an independent evaluation by a credit bureau of an organisation's ability to repay debt and meet obligations to its bondholders and other investors. The credit rating is to a large extent based on the organisation's borrowing and repayment history, and expressed as a ranking. Lenders use this information to decide whether to approve a loan. Moody’s, Standard & Poor’s and Fitch are the main three credit ratings agencies.

  • Cryptocurrency

    Cryptocurrency is the type of digital currency that uses cryptography for security and anti-counterfeit measures. Unlike regular currencies they only live online and are not backed by a central bank. Bitcoin was the first on the scene in 2009, since then numerous others have been created and cryptocurrencies have become a global phenomenon.

  • Cumulative preference (pref) share

    These shares will accumulate any dividend that is not paid when due. No dividends can be paid on ordinary shares until the backlog of unpaid dividends on cumulative prefs is cleared

  • Currency Swap

    Swaps are contracts to exchange cash flows on or before a specified date in the future, based on the underlying value of currencies/exchange rates, bonds/interest rates, commodities, stocks or other assets. A currency swap therefore involves exchanging streams of interest payments in two different currencies.

  • Cyclical Stock

    Stocks which are sensitive to business cycles, therefore whose performance is closely correlated to the overall economy. Cyclical companies tend to offer goods or services that are in lower demand during downturns in the economy and higher demand during upswings. Examples include the automobile, steel, and housing industries. The stock price of a cyclical company will often rise just before an economic upturn begins, and fall just before a downturn begins.

  • Debt

    Obligations, or assets, owed by one party (the debtor) to a second party (the creditor). Debt is usually granted with expected repayment – in most cases the repayment of the original sum, plus interest.
    As some companies used debt as part of their corporate finance strategy, it is also a way of using anticipated future purchasing power in the present before it been earned.
    Debt is the collective term for various fixed income instruments which obligate the issuer to repay the bondholder.

  • Decumulator

    Created in bear market, decumulators are the reverse of accumulators, and involve the investor writing a call option to the counterparty to agree to sell a fixed number of underlying assets on a regular basis at the strike price. (see <strong>structured products</strong> or <strong>accumulator</strong>)

  • Default

    When an individual or organisation fails to meet an obligation to repay a loan or interest payment on time and is therefore ‘in default’.

  • Default Risk

    The possibility for various reasons that an individual or organisation will fail to meet the terms of a loan agreement and therefore be in <strong>default</strong>.

  • Defensive Investment Strategy

    A Defensive Investment Strategy is a portfolio allocation strategy that helps minimize risk. An investor who employs this strategy would re-balance his or her portfolio through numerous strategies, including acquiring high quality stocks and bonds, allocating across a broad range of industries and markets, and keeping cash in down markets. These methods are intended to mitigate the risk of losses associated with declines in the market.

  • Defensive Stock

    A stock that tends to remain stable in difficult market conditions. Defensive companies include those producing food, tobacco, oil, and utilities. These stocks hold up in hard times because demand does not decline as dramatically as in other sectors. That said, they tend to lag other companies during rising markets because demand does not increase as dramatically in an upswing.

  • Defined Risk

  • Deflation

    Deflation is a condition wherein the amount of money in circulation is reduced. It is the opposite of inflation, and when an economy is deflated, money has a higher purchasing power. Deflation can be problematic to an economy because a decreased level of demand can increase unemployment rates and it causes the real value of debt to rise. Deflation can also exacerbate recessionary periods.

  • Delta

    A risk measure comparing the change in the price of the underlying asset to the corresponding change in the price of a derivative. Regarding call options, a delta of 0.5 means that for every £1 the underlying stock increases, the option will increase by 50p.<br />
    <br />
    Put option deltas will be negative, because as the underlying stock increases in value, the value of the option will decrease. So a put option delta of 0.5 means that for every £1 the underlying stock increases the value of the option will decrease by 50p.

  • Depreciation

    A method of recording the cost of a tangible asset over the length of its useful life, or the cost allocation over the period during which the asset generates revenue. Also refers to reduction in the asset’s value, either due to declining market conditions, or for use, attrition, depletion, time passage or other relevant factors.

  • Derivatives

    Derivatives derive their value from the values of other financial instruments. Eg a stock option derives its value from the value of a stock and therefore, it is considered a derivative. A swap is also a derivative due to the fact that its value is derived from the interest rate indices.<br />
    <br />
    Conversely, the primary instruments are cash instruments, with value acquired directly from markets - equities, bonds, commodities, etc.<br />
    <br />
    Forward and future contracts, swaps, and options are the most common types of derivatives.

  • Directional Investing

    Where an investment moves in line with your view of where the future direction of markets is headed. Ie if an investor believes stocks will go up, he will buy long; an investor who thinks stocks will go down sells short.

  • Director

    One who is elected by shareholders to serve on the board of directors. The directors appoint the president, vice presidents, secretary and all other operating officers. Directors are responsible for deciding if and when dividends are to be paid

  • Discount

    A discount is the difference between the sale price of a security or bond, and its par value, or net asset value.

  • Discounted Cash Flow (DCF)

    A discounted cash flow (DCF) helps investors determine the value of a potential investment. This analysis will take a future cash flow prediction and then discount it to determine the present value. The investment may be strong if the value found through DCF analysis is higher than the investment’s current value.

  • Discretionary Account

    An account in which the customer gives the broker, agent or intermediary full responsibility to buy and sell assets on their behalf.

  • Distressed Assets

    This refers to the shares, bonds, bank debt or other assets of troubled companies - which might be in the process of restructuring or going through bankruptcy, for example.

  • Diversification

    A technique for the identification and assessment of potential risks and combines a diverse array of investments or assets in a portfolio. The justification is that fluctuations in the value of single holding will have smaller negative impact as a part of a diversified portfolio. In this way, diversification reduces the overall risk of the investments. As asset classes behave in different ways under different market conditions, having a diversified asset mix will ensure that your portfolio is protected at least to some degree in falling markets. This is where asset allocation is key.

  • Dividend Yield

    The rate of investment return received by way of dividends. The yield is calculated by dividing the annual dividend by the market price of the share.

  • Dividends

    Payments made by a corporate entity to its shareholders, usually on a regular basis. Companies tend to approach their profits in two ways- either they reinvest any profits - distributing to their shareholders as dividends; or they retain a portion of their profits as earnings to reinvest into the business, while distributing the rest in the form of dividends. Dividends are classed as a taxable income stream. They are usually paid out on a regular (quarterly, annual etc) basis or on an ad hoc basis or when a company has exceptionally strong earnings or is making a change to its financial structure, for example, known as a special dividend.

  • Dollar-Cost Averaging (DCA)

    Dollar-cost averaging (DCA) is an investment method where the investor purchases constant dollar amounts of a certain investment at set intervals. The goal is to mitigate the effect of volatility by dividing an investment into smaller amounts and purchasing at regular intervals. This can minimize the risk of a significant loss if the investor makes a lump sum investment and the market declines. The fixed dollar amount means the investor can buy more shares when prices are low and fewer when prices rise.

  • Domicile

    The country where funds are registered.

  • Dove

    An investor that promotes the maintenance of low interest rates. Doves believe that inflation and its negative effect upon society are minimal. They prefer low interest rates as a means of igniting growth within the economy.

  • Drawdown

    The decline in an investor’s value, from peak to trough, over a given period.

  • Dry Powder

    Dry powder refers to a reserve of cash or liquid securities that has yet to be deployed.

  • Due Diligence

    Essentially an audit or an investigation of a potential investment. Due diligence may also be defined as the care that should be taken by the trader before entering into transaction or signing an agreement with another party.

  • Duration

    In basic terms a bond's duration measures the effect of each 1% change in interest rates on the bond's market value. By taking the bond's interest payments into account, duration helps investors assess the volatility of the bond price over time - the longer the duration (expressed in years), the more volatile the price will be.

  • Earnings

    In essence the profit or net income of a company, which describes how much money a business has left after subtracting its expenses, including taxes, from the revenue generated through sales

  • Earnings Per Share (EPS)

    The amount of annual profit (after tax and all other expenses) attributable to each share in the company. EPS is calculated by dividing profit by the average number of shares on issue.

  • Earnings report

    Also called an income statement, this is issued by a company to show its earnings or losses over a given period. The earnings report lists the income earned, expenses and the net result.

  • EBIT

    ‘Earnings before interest and taxation’. A measure of a company’s earnings before considering the financing of that company (the share of equity capital and debt employed). It excludes interest costs and taxation, and therefore EBIT allows comparisons between the underlying company’s performance over time, and between different companies in similar industries.

  • EBITDA

    ‘Earnings before interest and taxation, depreciation and amortisation’. A measure of a company’s earnings before considering the financing of that company (the share of equity capital and debt employed), and disregarding potentially depreciation and amortisation policies, which can be very different. EBITDA allows like-for-like comparisons between different companies’ performance.

  • Economic Data

  • Economic Moat

    A term coined by Warren Buffett, the economic moat refers to the advantage one company holds over others in its industry. A wider moat means that the company has a greater competitive advantage, as well as the capacity to maintain this advantage over a longer period of time. Attributes such as general renown and having control over a significant amount of market demand helps a company create a wide moat, which protects against other companies that may try to succeed in the industry.

  • Effective Interest Rate

    The interest rate on an investment that takes into account the effects of compounding, if compounding occurs more than once a year.

  • Efficiency

    Market efficiency suggests at any given time, stock prices fully reflect all available information available to all investors, therefore suggesting no investor can have an advantage over another in predicting a return on a share price. Inefficient market pricing suggests some information is possibly being withheld, or is unavailable, either in part or whole.

  • Efficient Frontier

    A set of investment portfolios that offer the highest expected return for a defined level of risk, or the lowest level of risk for a defined level of return. Portfolios either side of these levels are said to be sub-optimal.

  • Embedded Value or EV

    A common accounting method used by insurance companies. It is usually calculated as the sum of the adjusted net asset value and the present value of the future profits of that firm, taking into account estimates of future cash flow, assumptions over mortality, persistence etc.

  • Emerging Markets

    Nations or markets with social or business activity with high economic growth and industrialisation prospects. EM (or global emerging markets, or GEM) tend to have lower debt to GDP ratios than developed nations, sub-investment grade debt ratings (see EMD), high growth rates, high inflation, relatively recent economic or political liberalisation and tend to be outside the OECD, or Organisation of Economic Cooperation and Development. Foreign investment in these markets tends to come with tight restrictions.

  • Emerging Markets Debt or EMD

    Bonds and debt instruments issued by emerging market countries. This tends to be sovereign rather than corporate paper but companies in these markets are able to borrow, from banks and other sources. Sovereign issuance has historically been issued in foreign currency (external debt), either US dollar or euro – these are known as hard currencies, as opposed to local currencies. This is however changing as more local currency issuance is coming to market. EMD tends to have a lower credit rating than the developed markets but this has been changing since the credit crunch and the European sovereign debt crisis.

  • Endowment

    An endowment policy is a type of fixed-term life insurance policy designed to pay out a lump sum - plus any bonuses - at the end of the term, or to pay a beneficiary upon the death of the policyholder, whichever is sooner. They are typically 10, 15 or 20 year terms, up to a certain age limit. They tend to take the form of a with-profits fund, or are unit-linked. They can be cashed in early for a surrender value, to be determined by the insurer.

  • Equity

    In accounting terms, equity is the total assets minus all liabilities. If liability exceeds assets, negative equity exists.<br />
    <br />
    In investment terms, equity investments refer to the buying and holding of shares, or stock, on a stock market. You tend to invest in equities in the hope of income from dividends and capital gains. Equity holders are granted voting rights, giving them a say in major transactions affecting the business, and therefore their investment, however they tend to be the lowest priority in terms of recovering their investment should the company go under. See also <strong>Private Equity</strong>

  • Equity Fund

    A fund in which equities are the predominant asset class. The fund might have different investment objectives and management styles to determine whether it invests in the smaller, mid-sized or large-cap companies, other sector-specific stocks, or those from a particular geographical region.

  • Equity Market Neutral

    A hedge fund strategy designed to exploit inefficiencies in the equity markets and usually involves holding long and short portfolios of the same size within a particular region, sector, industry, market etc. Market neutral portfolios are designed to be either beta- or currency-neutral or both. The idea is that the long and the short books cancel out any market movement and it is pure stock selection that will create gains or losses in the fund.

  • Estate Planning

    This refers to an on-going process to deal with the management and disposal of an individual's assets in the event of his or her incapacitation or death. The objectives are generally to reduce the risk of any uncertainty over the estate and how it should be distributed, whilst maximising its value through tax mitigation and that of other expenses.

  • Ethical Investing

    Investment strategies that choose to invest in companies that operate ethically, provide social benefits, and are sensitive to the environment. These tend to use either positive or negative screening methods – eg a business will invest in clean energy, or a business will NOT invest in businesses that support arms dealing. See also <strong>Socially Responsible Investing</strong> or <strong>SRI</strong>

  • EU

    The European Union is made up of 27 member states which are primarily located in Europe. The EU was established with its current name by the Maastricht Treaty in 1993. The Union operates through a series of institutions and cross-governmental decisions, negotiated by the member states to create a unified, barrier-free market for products and services throughout the continent. These include the European Commission, Council of the European Union, the European Council, European Council of Justice and the European Central Bank. The parliament is elected every five years by EU citizens. The countries include: <em>Belgium; France; Netherlands; Germany; Italy; Luxembourg; Denmark; Ireland; UK; Greece; Portugal; Spain; Austria; Finland; Sweden; Hungary; Poland; Czech Republic; Slovak Republic; Slovenia; Estonia; Latvia; Lithuania; Malta; Cyprus; Bulgaria; Romania</em>

  • Eurobond

    An international bond denominated in a currency that is not that from the country where it is issued. Also called external bonds. This market is an important source of capital for multinational companies and can be traded throughout the world, such as in London, Singapore or Tokyo. They are named after the currency they are denominated in, such as Euroyen, Eurodollar.

  • Eurozone or Euroland

    The collective group of countries which use the Euro as their common currency.

  • Event-Driven Funds

    An event-driven strategy exploits major happenings such as mergers, acquisitions and restructurings that may temporarily displace a company’s stock.

  • Ex-dividend

    Means buying a stock ‘without dividend’. Ie the buyer of an ex-div stock does not receive the recently declared dividend.

  • Ex-rights

    Means buying a stock without the rights. Corporations raising additional money may do so by offering their stockholders the right to subscribe to new or additional stock, usually at a discount from the prevailing market price.

  • Exchange Traded Fund (ETF)

    An investment fund traded on stock exchanges in the same way as stocks. They tend to hold assets - usually stocks, commodities or bonds - usually by tracking an index. They trade close to net asset value over the course of the trading day, and due to stock-like characteristics, are low cost, tax efficient and an increasingly popular way of gaining tactical exposure to certain asset classes.

  • Executor

    The person appointed either by probate or a Will to administer the estate of a deceased individual according to directions provided.

  • Exit Fee

    The fee payable when you want to redeem or cash in an investment.

  • Extra/Extra Dividend

    A dividend in the form of stock or cash in addition to the regular or usual dividend the company has been paying.

  • Factor Combinations

  • Factors

  • Fair Market Value

    The price someone is willing to pay for a particular asset on the open market under normal conditions. Fair market value assumes that both buyer and seller are well-informed of market conditions, and that there is no pressure driving the transaction.

  • Fair Value

    The equilibrium price for a futures contract. This is equal to the spot price after taking into account compounded interest over a certain period, and also dividends lost because the investor owns the futures contract rather than the physical stocks.

  • FANG Stocks

    FANG is an acronym for the stocks of Facebook, Amazon, Netflix and Google. These four companies represent some of the best performing technology stocks.

  • Federal Reserve

  • Feeder Fund

    One of several funds that invest only into another, umbrella fund, called a master fund, which oversees investment and trading activity. The feeder and master funds may be in different currencies, being used to channel cash into the main fund. These are often used by hedge funds to pool investment capital. The profits are split between the feeder funds in proportion to their investment.

  • Fees

    Buying any investment incurs some sort of fee, effectively the remuneration for those involved in the process of bringing the product to market. These could be attributed to the manufacturer and/or portfolio manager, the adviser or broker, plus any administration platform that is involved in the process.

  • Fiduciary Management

    An approach to asset management that involves an asset owner appointing a third party to manage their total assets through a combination of advisory and delegated investment services, with a view to achieving the asset owner's overall investment objectives. In principle, the model can be applied to the investments of any asset owner, but in practise the label is generally used in relation to the management of institutional assets (mainly pension funds) as opposed to retail assets.

  • Financial Advisors

  • Financial Planner

    One who helps their client/s create and stick to a detailed strategy to properly manage his or her financial affairs to try to achieve their intended financial and lifestyle goals. The financial planner helps the individual identify their current financial and personal situation, their future objectives and risk appetite to determine an appropriate mix of investment, insurance and other financial services products.

  • FinTech

    Short for “Financial Technology” has been around for a lot longer than one might think. While the term itself is relatively new, fintech played a key role in ways most people take for granted. In the 1950s, credit cards eased the burden of carrying cash, in the 1960s, ATM machines replaced bank branches. Electronic stock trading began in the 1970s, and in the 1990s the internet and ecommerce business models flourished. Now, retail financial services are being further digitized via mobile wallets and robo advisors. These services are not simple enhancements but rather replacing bank services completely.

  • Fiscal year

    When calculating financial statements in business, most regulations require accounting and taxation reports every 12 months, which is known as a fiscal year. The period reported on is not required to coincide with the calendar year, with a company sometimes choosing to close the accounts at a time of their convenience. Fiscal years vary between businesses and countries. The fiscal year may also refer to the year used for income tax reporting. It is always referred to by the end of the period.

  • Fixed Income Assets

    These are debt instruments which pay investors a fixed income, interest payment or coupon over a set timeframe, as well as paying back their original investment. For example, government or corporate bonds fall into this category.

  • Fixed Income Fund Manager

    This is a fund manager who manages fixed income assets issued by various entities by using a variety of strategies according to the fund's investment objective and management style.

  • Flat Yield Curve

    A flat yield curve happens when there is minimal variation between the short and long term interest rates for securities in the same category or of the same quality. A flat yield curve means that someone who invests in long-term securities will have no advantage over short-term securities, because the yield would be very similar.

  • Floating Rate

    Any interest rate that changes on a periodic basis. The change is usually tied to movement of an outside indicator, such as the Bank of England Base Rate. Movement above or below certain levels is often prevented by a predetermined floor and ceiling for a given rate. Also called adjustable rate.

  • Flotation

    The process of publicly offering shares to investors and listing on the stock market. A float may involve the issue of new shares to raise more capital for the company or the sale of shares previously owned by other shareholders. Float and initial public offering are terms often used interchangeably.

  • Forex

    Foreign exchange, FX, or currency market, a global decentralised market where international currencies are traded. The FX market determines the relative values of different currencies.

  • Forward / Forward Contract

    A non-standardised contract written up by two parties in which they agree to buy or sell an asset at a specified price at some point in future. The party agreeing to buy the asset in the future assumes a long position, and the party agreeing to sell the asset in the future assumes a short position. They are similar to futures contracts, except they are not exchange-traded, or defined on standardized assets.

  • Founders Share Classes

    New hedge fund managers may offer founders share classes, which are essentially discounts on management and performance fee charges across a specified commitment period. The share classes are meant to entice day-one or early investors in the fund.

  • FTSE 100

    The Financial Times Stock Exchange 100 stock index - comprising the top 100 largest companies traded on the London Stock Exchange.

  • Fund Manager

    The person responsible for deciding which stocks (or other assets) to buy and sell, along with any other investment-related decisions, within the fund the individual is managing, ensuring it met the fund’s stated investment objectives.

  • Fund of Funds

    A fund which invests in other funds rather than investing directly in shares, bonds or other assets. Often referred to as multi-management, this technique achieves greater diversification and portfolio stability, but can involve higher management fees.

  • Fundamentals/Fundamental Analysis

    Analysis and evaluation of the future prospects and returns of a stock by looking at the company’s financial history and current standing including sales, earnings, management etc as well as the strength of those products or services in the context of the market and the overall economy.

  • Funds under Management

    Total amount of funds managed by an organisation - be it a fund, or a business excluding leverage.

  • Futures

    A standardised contract between two parties that obligates them to buy or sell a specified quantity of an underlying asset at a future date and at a price agreed when the contract was executed. That price is known as the futures price or strike price. The buyer is known as ‘long’, and the seller ‘short’.

  • Gate Provision

    A gate provision is a clause in hedge fund investing that may limit the amount of withdrawals from the fund during a period of redemption.

  • Gearing

    A way of maximising potential return using less capital. Also known as financial leverage, or borrowing. This generally involves the use of debt to increase the expected returns on equity – for example the purchase of an option with a small upfront payment in the form of a premium.

  • Gilt-Edged Security / Gilt

    The simplest form of UK government bond, issued by the UK government, which pays the holder a fixed cash payment, or coupon, every six months until maturity. The term is British in origin and originally referred to the bonds issued by the Bank of England which had a gilt or gilded edge. Can refer to bonds from other commonwealth nations, but is generally meant to refer to UK gilts unless specified.

  • Global Economy

  • Global Macro

    An investment strategy based on shifts in global economies, where derivatives are often used to speculate on currency and interest rate movements.

  • Gold Fix

    The setting of the price of gold by dealers, the fix is the fundamental worldwide price for setting prices of gold bullion and gold-related contracts and products.

  • Growth Stocks

    Shares in companies that have demonstrated high rate growth during past periods and show the potential to achieve above-average growth in profits over time. Growth companies tend to pay low dividends and reinvest their profits into growing their business. Typical of smaller, less mature companies and markets; or technology, or high tech companies.

  • Hawk

    An economic policy advisor who has a negative view toward inflation and its effects on society. Hawks monitor and control economic inflation through interest-rate adjustments and monetary policy controls. They tend to prefer higher interest rates in order to maintain reduced inflation.

  • Hedge Fund

    Hedge funds’ initial investments are substantial and cannot be withdrawn for at least a year. Managers receive a performance fee and can take advantage of the lighter-touch regulations in comparison to those in an ordinary investment fund. Hedge funds use different methods to reduce potential risk, but their main objective is to maximise returns using a wide range of strategies. Hedge funds operate in domestic and international markets, aiming to generate higher returns on the investment.<br />
    <br />
    Some of the asset classes or strategies exposed to will include: derivatives; emerging markets; aggressive growth; distressed securities; quantitative or discretionary macro. Generally the domain of professional investors with a much higher risk appetite.

  • Hedge Fund Hotel

    A hedge fund hotel is a colloquial term for a large-cap equity stock that has a large number of hedge funds invested in it.

  • Helicopter Drop

    Helicopter Drop is a hypothetical monetary policy that involves printing and distributing large amounts of money to rejuvenate the economy during periods of deflation. Economist Milton Friedman first introduced the term and former Federal Reserve Chair Ben Bernanke popularized it in a speech in 2002, referring to ways to tackle deflation.

  • High Conviction Stock Picking

    Where a typical portfolio is unconstrained by benchmarks, which allows the manager to take a more active approach, choosing a smaller number of stocks that have a greater influence on the portfolio, and possibly bearing little or no resemblance to the consensus view.

  • High Net Worth Individuals

    There is no fixed definition but high net worth (HNW) individuals are generally classified as those people with at least $1m in disposable assets. They are typically private banking clients.

  • High Water Mark

    A level of performance that ensures a fund will only take fees on profits earned if it passes a minimum level. Eg if £10m is made in year one, but then the fund falls by 50%, leaving £5m; if in year two, the fund returns 100%, it brings the investment value back to £10m. If a fund has a high water mark it will not take fees on the second year’s return since the investment has not grown. The fund will only take incentive fees if the investment grows above the initial level of £10m.

  • High-Yield Bond

    A bond issued which is rated below investment grade, also referred to as junk bond. In line with their lower credit ratings, high yield bonds have a higher risk of default, and therefore offer investors a higher yield than investment-grade debt securities.

  • Income bond

    Typically income bonds promise to pay back the initial investment but also pay interest when earned. In some cases unpaid interest on an income bond may accumulate as a claim against the corporation when the bond becomes due. An income bond may also be issued in lieu of preferred stock.

  • Income Fund

    A fund which mainly invests in fixed income assets with the aim of producing income at the same time as preserving capital, although the focus is primarily on generating income rather than long-term growth.

  • Income Shares

    Income shares provide income in the form of dividends. Companies that choose to pay out a higher proportion of earnings as dividends and offer a relatively high dividend yield are termed income shares. See <strong>accumulation</strong> shares

  • Income Statement

    Also known as a profit and loss or earnings statement, an income statement is a financial report that shows a company’s performance over a period of time. The statement will report financial performance by summarizing revenues and expenses for all of the company’s operations. The income statement also reflects losses over the period of time accounted for.

  • Index

    A stock market index measures the respective value of a group of company shares, indicating their stocks’ performance. These are generally categorised by global, national, or sector-specific and compare like-for-like companies.<br />
    <br />
    A price index, such as CPI or RPI, typically stands for weighted averages of prices for certain categories of goods and services and illustrate the fluctuation of prices in a particular area and during a defined period of time.

  • Index Linked Gilt

    A gilt whose interest and capital change in line with the Retail Price Index (RPI).

  • Indexing

    Investing in an index fund with the aim of mirroring the performance of a particular stock or bond index, which the fund tracks. The index, or tracker, fund purchases all the stocks or bonds in the index, or at least a representative sample of them, and then buys or sells individual investments when the underlying assets in the index change to remain in line.

  • Inflation

    The rate at which prices tend to rise over time.

  • Initial Public Offering (IPO)

    See flotation

  • Institutional Investor

    An organisation whose primary purpose is to invest its own assets or those held in trust by it for others on a professional basis. Includes pension funds, investment companies, insurance companies, universities and banks and other pooled asset investments.

  • Insurance

    A method of risk management to protect against the chance of a contingent loss. The insurer promises to pay compensation for a specified potential future loss in exchange for a regular payment by the insured, or policyholder, during the term of the policy.

  • Insurance Premium

    The cost you pay for obtaining insurance cover, paid either as a lump sum at the start of the insurance period or in instalments throughout the duration of the policy. The premium will be calculated by the insurance company based on various risk factors related to the insured party.

  • Interest

    The term interest refers to a fee that is charged by a lending institution for a borrowed sum of money. The interest is typically expressed in the form of annual percentage of the principal.

  • Interest Rates

  • Internal Rate of Return (IRR)

    Also known as “economic rate of return” (ERR), internal rate of return (IRR) is used to measure and compare the quality, in terms of profit, of potential investments. Better investments will have higher internal rates of return. The formula for calculating IRR is the same as that of NPV, but IRR reflects an investment’s quality, while NPV shows the value of the investment.

  • International Monetary Fund

    The IMF is a multilateral organization set up in 1944 to support trade flows after World War II. Based in Washington, DC the IMP receives funds from member nations and lends to countries in financial need. The loans are contingent on the borrowers carrying out economic policies favored by the IMF leaving the organization vulnerable to criticism.

  • Intrinsic Value

    This refers to the value of a stock, calculated by taking the future income generated by the stock and discounting it to the present value. The intrinsic value (or fundamental or actual value) lies outside the perceived market price, or book value.

  • Inverted Yield Curve

    An inverted yield curve is when long-term debt instruments have lower yields than short-term instruments of equal credit quality. This type of yield environment is the rarest of the three types of curves, and is said to forecast a potential recession. Inverse yield curves also predict falling interest rates because of the higher demand for long-term instruments.

  • Investing

  • Investment

    ‘Invest’ refers to the term ‘vestis’, from Latin, which relates to placing money or cash into the pockets of other persons. The term refers to several meanings that relate to business, finance and economics by using current assets (real or financial) in order to earn a profit.

  • Investment Bank

    These are financial institutions take on underwriting actions that assist individuals, corporations and governments to raise capital and trade assets. They will offer brokerage and consultancy services to deal in the investment of equities, bonds, foreign exchange, derivatives, and commodities, among others. They may also assist in merger and acquisition activity, market making and credit risk assessment, to aid the acquisition of funds. They differ from retail banks in that they do not take deposits.

  • Investment Company

    Investment company is a listed company or trust, which invests capital in other companies on behalf of its shareholders. Most investment companies pool funds from many small investors and invest it in a large portfolio, depending on its return objective. Usually used to refer to closed-end funds or investment trusts.

  • Investment Grade

    Usually refers to higher quality (because lower risk) fixed income assets, which tend to be rated BBB or higher. The opposite of investment grade is sub-investment grade, higher yield or junk bonds.

  • Issuer

    Any company or organisation that has raised capital through issuing debt, credit or equity on the capital markets.

  • January Effect

    Tendency of stock markets to rally during the first week of January. It occurs because many investors choose to sell some of their stock right before the end of the year in order to claim a capital loss for tax purposes. Once the tax calendar rolls over on January 1, these same investors quickly reinvest their money in the market, causing stock prices to rise. Despite the ‘January effect’ being observed many times historically, investors still find it difficult to profit as it has become expected and therefore adjusts its prices accordingly.

  • Junk Bond

    A bond that pays a higher yield due to significant credit risk - tend to be lower than BBB. See <strong>Investment grade</strong>, or <strong>bond ratings</strong>.

  • Kick-out plan

    Referred to in structured investing, sometimes called an autocall investment. This is a market-linked investment which can automatically mature or ‘kick out’ to return the original capital and stated return.
    The early kick-out will be determined by pre-set market conditions being met (such as a certain barrier on a set date) and most offer the option to mature early each year.

  • Leverage

    Effectively referring to borrowing, the term leverage means using debt to fund future investment in order to maximise returns. The term also suggests the degree to which businesses use debt to finance their projects. Highly leveraged companies are exposed to increased risks of bankruptcy in case that they are unable to repay their outstanding debts. See also <strong>gearing</strong>.

  • Liabilities

    Liability refers to a legally binding obligation of an organisation arising from past transactions, leading to a required debt repayment. The repayment of any debt, or transfer of any assets, usually must occur within a specified timeframe or on demand.

  • LIBOR

    London Inter Bank Offered Rate, or the average interest rate estimated by leading London banks that they would be charged if they borrowed from each other. It is calculated for 10 different currencies and 15 borrowing periods ranging from overnight to 1 year and published daily before midday by Thomson Reuters on behalf of the British Bankers Association.

  • Lifestyle Funds

    Investment funds, usually the reserve of long-term pension savings, that feature an asset mix determined by the level of risk and reward that is appropriate for that particular investor at a particular life stage. Factors taken into account include their age, risk appetite, investment objective and timeframe. They can be cautious, balanced or adventurous in nature, which tend to fall in line with the factors outlined above. Target date funds tend to fall into this category.

  • Limited Liability Partnership (LLP)

    A legal set up whereby two or more partners join forces to form a business but where the partner is only liable to the extent of the amount that partner has invested. Partners do not receive dividends but they do have direct access to the flow of income, gains and expenses.

  • Liquidation

    In business, the process by which a company (in part or whole) is wound up, and the assets of the company redistributed. Liquidation may be compulsory (enforced by the creditors) or voluntary (by the shareholders).<br />
    <br />
    Elsewhere, liquidation is the act of converting an asset into cash.

  • Liquidity

    This refers to the ease with which an asset can be converted into cash. For instance, the liquidity of a certain company’s stock refers to the ability of the market to absorb buying and selling of this stock without serious effect on the stock price. Tends to refer to large, high quality companies with lots of share activity taking place and a big market for it to trade. Illiquid stock is that which has low volume, where even a small number of trades can affect its price, such a property.

  • Listed Company

    A public limited company (or plc) which chooses for its shares to be bought and sold by the public through an exchange – the London Stock Exchange, for instance – and adheres to the rules and regulations in place for it to do so.

  • Loan

    A type of debt that entails the passing of financial assets over time beween the lender and the borrower, usually under the conditions that the initial amount is repaid over a set time, usually in instalments, for a rate of interest. If the person fails to pay back the loan as agreed, they are said to default on that loan. Loans tend to be either secured - those guaranteed by collateral such as property, or other real assets. Unsecured loans are based on the credit rating of the borrower, which comes with higher risks for the lender.

  • Lock Up / Lock In

    Time period during which an initial investment cannot be redeemed, often found in the conditions for shares bought during an IPO.

  • Locked in

    Investors are said to be ‘locked in’ when they have made a profit on a security they own but choose not to (or are forced not to) sell because their profit would immediately become subject to the capital gains tax.

  • Long / Long Position

    Long position or long refers to the purchase of an asset with the idea of profiting from a future increase in its value. Typically, a long position is established by means of buy order. The investor will profit only in case that the security increases in price. The opposite, or short-selling is where the investor hopes to make a profit by anticipating a fall in the asset’s price at which they will buy options (to then resell at a higher than negotiated price) See shorting or absolute return. Long-only managers will not involve themselves in short-selling, sticking to only the idea that stocks should be bought at a lower price and sold at a profit.

  • Long-Term Debt

    Long-term debt refers to liabilities that last longer than one year. They are also referred to as funded debt. Firms must disclose their long-term obligations on their balance sheet, including the corresponding interest rates and the date of maturity. Long-term debt differs from long term liabilities as the latter covers the supply of various services that may be paid already. Firms with extensive amounts of debt may be overwhelmed by interest rates. Moreover, they will have insufficient amount of working capital for their daily operations. These factors may ultimately result in bankruptcy. Long-term debt typically consists of business loans, mortgages and bonds with maturities over one year.

  • Longevity Risk

    The risk that someone lives longer than expected and therefore might not have saved enough money to cover this additional timeframe. Also often refers to the risk that an insurance company or pension fund needs to make higher-than-anticipated payouts as a result of policyholders or retirees living longer than expected.

  • Loss Aversion

    A term used in behavioural finance, referring to the mindset of an individual who is more focused on avoiding losses on an investment than on making a positive return.

  • Macro-Economics

    The study of economy-wide phenomena such as changes in unemployment, national income, rate of growth, and price levels.

  • Managed Accounts

    Accounts for individual investors managed separately by an investment manager; usually with a high minimum investment.

  • Managed Funds

    Funds, companies or trusts that offer a means of investing indirectly in securities by combining capital from many investors, with a professional managers responsible for the day to day investment management. See <strong>Mutual Fund</strong>

  • Managed Futures

    An investment strategy in which a portfolio manager uses futures contracts as part of an overall investment strategy, providing portfolio diversification to help mitigate risk.

  • Management Fee

    The fees taken by an investment manager for the management of an investment portfolio. A 1% annual management fee on a portfolio of $1million would equate to an annual fee of $10,000.

  • Margin

    Margin is the strategy of borrowing to invest in securities and exposes investors to risk due to the interest payments on the borrowed amount. Margin buying can occur when securities are used as collateral to the borrowed money, with the cash used for the investment representing the difference between the value of the collateral and the amount of the loan.

  • Margin call

    A margin call refers to a broker’s call or demand to an investor (using) margin for additional securities or money. When is a margin call issued? If the equity - the difference between what you owe the broker and your securities value in your account makes a downward slide and reaches below the minimum maintenance margin, your brokerage is bound to issue a margin call. In this situation you have the option of either liquidating your position in the stock or adding more cash to the account.

  • Mark-to-Market

    This is an accounting calculation used to work out the current price or market value of an asset, typically on a daily basis, to determine the buy / sale price - and therefore potential profit or loss - at that point in time.

  • Market Capitalisation (Market Cap)

    The total market value of a company or the total market is calculated by multiplying the total number of shares in issue by their market price.

  • Market Maker

    An Exchange member firm that is obliged to make a continuous two way price, that is to offer to buy and sell securities in which it is registered throughout the mandatory quote period.

  • Market Neutral

    A portfolio of investments is considered market neutral if it seeks to entirely avoid some form of market risk, typically by hedging. In order to evaluate market neutrality, it is first necessary to specify the risk being avoided.

  • Market Neutral Investing

    This is an investment strategy which attempts to eliminate market risk and be profitable in any market condition and produce almost the same profit regardless of market circumstances.

  • Market Price

    The Market Price is the last reported price at which a security or bond has been sold.

  • Market Risk

    This is the risk that the value of a portfolio will decrease due to the change in value of the market risk factors. The four standard market risk factors are stock prices, interest rates, foreign exchange rates, and commodity prices.

  • Market Timing

    The strategy of making buy or sell decisions by attempting to predict future market price movements and may be based on an outlook of market or economic conditions.

  • Market Value

    The value at which an asset trades or a value attributable to an asset if it were to trade in the market.

  • Markets

  • Master-Feeder Structure

    A master-feeder structure is commonly used by hedge funds to pool capital from both U.S. and international investors.

  • Maturity

    This is the time when a debt, such as a loan or bond, must be paid off. The date is often called the maturity date.

  • Maximum Draw Down

    This refers to the largest loss suffered by a security or fund over a given period.

  • Merger

    This involves the combination of two or more corporations into a single entity.

  • Merger Arbitrage

    Merger arbitrage or Risk arbitrage is a trading strategy often associated with hedge funds. Two principal types of merger are possible: a cash merger, and a stock merger.<br />
    <br />
    In a cash merger, an acquirer proposes to purchase the shares of the target for a certain price in cash. An arbitrageur buys the stock of the target and makes a gain if the acquirer ultimately buys the stock at a higher price than his purchase price.<br />
    <br />
    In a stock for stock merger, the acquirer proposes to buy the target by exchanging its own stock for the stock of the target. An arbitrageur may then short sell the acquirer’s stock and buy the stock of the target. After the merger is completed, the target's stock will be converted into stock of the acquirer based on the exchange ratio determined by the merger agreement. The arbitrageur delivers the converted stock into his short position to complete the arbitrage.

  • Mergers and Acquisitions (M&A)

    Mergers and acquisitions refer to the establishment of a single entity through the combination of their assets and liabilities. Acquisitions indicate the takeover of one entity by another.

  • Minimum Holding

    Is the indication of the minimum amount of shares/bonds/units an individual must hold.

  • Miss-selling

    This is the deliberate, reckless or negligent sale of products or services in circumstances where the contract is either misrepresented, or the product/service is unsuitable for the customer's needs.

  • Money Laundering

    This is the process by which persons seek to conceal the origin and ownership of money obtained through criminal activities and then changes the ownership of the money by engaging in financial transactions to look like the money has been derived from legitimate means.

  • Money Market Fund

    A mutual fund whose investments are in high-yield money market instruments such as federal securities, CDs and commercial paper. Its intent is to make such instruments, normally purchased in large denominations by institutions, available indirectly to individuals.

  • Mortgage Backed Security

    A pass-through security that aggregates a pool of mortgage-backed debt obligations. Mortgage backed securities’ principal amounts are usually government guaranteed. Homeowners’ principal and interest payments pass from the originating bank through a government agency or investment bank, to investors, net of a loan servicing fee payable to the originator.

  • Multi-Manager Platform

    While hedge funds are often associated with one manager who makes investment decisions, some funds may employ a multi manager model in which multiple PMs are assigned portions of the fund’s overall assets or risk budget.

  • Multi-Manager Product

    An investment portfolio which allocates assets to a number of managers with different investment styles. This methodology facilitates a high degree of diversification and accordingly the potential for a greater spread of risk. Hedge funds often have this structure. Smaller investors are able to enjoy access to a greater variety of managers that would normally be prohibited by minimum investment requirements for each manager.

  • Municipal Bonds

  • Mutual Fund

    A mutual fund is a type of professionally-managed collective investment scheme which pools money from many investors to purchase securities Investors in a mutual fund pay the fund’s expenses and a single mutual fund may give investors a choice of different combinations of expenses by offering several different types of share classes.<br />
    <br />
    The investment portfolios of the mutual funds are constantly a subject of adjustment and supervision by a manager. He is responsible for the cash flow forecasts as well as reporting on the investments that will perform well in the future in view of the fond. He will choose between those he deems worthy for the investment objective of the fond. The administration of the mutual fund is done under a contract with a management company, responsible also for the hiring of managers.<br />
    <br />
    Several advantages are notable when the mutual funds are compared with individual stocks` investments. For example, divided among the shareholders of the mutual fund, the transaction costs are lower. A professional fund manager may also contribute to the investors` adequate decisions due to his expertise and dedication to managing the options for investment.

  • NAFTA

    An acronym for North American Free Trade Agreement is a treaty implemented on January 1, 1994 between Mexico, Canada and the United States. NAFTA eliminated most tariffs on trade between the three economic powers and encouraged economic activity. NAFTA is the first time two developed nations signed a trade agreement with an emerging market country. NAFTA is 2,000 pages with 8 sections and 22 chapters. It's pros and cons are hotly debated. On January 23, 2017 President Trump signed an executive order to renegotiate NAFTA as he prefers bilateral trade agreements over multilateral ones.

  • NASDAQ

    National Association of Securities Dealers Automated Quotations, founded in 1971 as one of the first world electronic market for stocks.

  • Negative Equity

    A position s where the value of an asset falls below the outstanding balance of the loan used to buy that asset in the first place. The term is commonly used in reference to property - where a mortgage used to fund the purchase and where the property’s value has decreased to a point where it is below the amount owed on the mortgage.

  • Net Asset Value (NAV)

    NAV equals the closing market value of all assets within a portfolio after subtracting all liabilities including accrued fees and expenses. NAV per share is the NAV divided by the number of shares in issue.

  • Net Change

    The change in the price of a security from the closing price on one day to the closing price the next day on which the stock is traded.

  • Net Exposure

    The exposure level an investor has to a market or stock equal to subtracting the short percentage from the long percentage. For example if a fund is 90% long and 40% short, then the net exposure is 50% long.

  • Net Present Value (NPV)

    Net Present Value (NPV) is the value used to help determine the potential for profit of a potential investment or business project. It is calculated as the difference between the current value of inflows and the current value of outflows. Usually, a positive NPV indicates a profitable project while a negative NPV will cause a loss.

  • Net Worth

    Is the current market value of total assets, including cash, minus total liabilities.

  • New Issue

    The term used to describe the initial sale of a stock or bond by a corporation.

  • New York Stock Exchange (NYSE)

    The largest Stock Exchange in the world is the New York Stock Exchange, located at Wall Street in Manhattan, NY.

    The NYSE is operated by NYSE Euronext (NYSE: NYX), which was formed by the NYSE's 2007 merger with the fully electronic stock exchange Euronext. The NYSE trading floor is located at 11 Wall Street and is composed of four rooms used for the facilitation of trading. A fifth trading room, located at 30 Broad Street, was closed in February 2007. The main building, located at 18 Broad Street, between the corners of Wall Street and Exchange Place, was designated a National Historic Landmark in 1978, as was the 11 Wall Street building.

  • Nominal Value

    The face value of a bond.

  • Nominee Name

    Name in which a security is registered and held in trust on behalf of the beneficial owner.

  • Non-Directional Investing

    A hedge fund strategy taking advantage of market and price discrepancies, including: equity market neutral, relative value arbitrage, and event driven.

  • Offer

    The Offer term refers to the price at which an owner of an asset is ready to sell the asset.

  • Offer Price

    The price at which someone will sell shares to you (i.e. offer them to you). The offer price is higher than the Bid Price which is the price at which they will buy shares from you.

  • Offshore

    Located or based outside of one's national boundaries. Typically these locations have preferential tax treatments and fund legislation.

  • Open Architecture

    Open architecture platforms exist where an institution offers its clients access to external products created by other companies, unlike closed architecture platforms, where the institution only offers those products it creates internally.

  • Open-end Fund

    These are funds where units or shares can be bought and sold daily and where the number of units or shares in issue can vary daily.

  • Operational Risk

    This refers to the risk of losses arising from failed internal processes, people or systems - or from external events. The term is most commonly used in association with risk management within financial institutions and investment funds.

  • Options

    A contract giving the right to buy or sell a commodity or security at an agreed price during a given period of time.

  • Out-of-the-Money

    An out of the money option has no intrinsic value. A call option is out of the money when the strike price is above the spot price of the underlying security. A put option is out of the money when the strike price is below the spot price.

  • Over the Counter - OTC

    A market for securities made up of securities dealers who may or may not be members of a securities exchange. Over-the-counter dealers may act either as principals or as brokers for customers. The over-the-counter market is the principal market for bonds of all types.

  • Overbought

    The point at which prices have moved up too far and too quickly. If the market is considered overbought, experts will start to sell.

  • Overlay Strategy

    A type of derivatives strategy. This strategy can be used to provide protection from events that are not the primary focus of the main portfolio strategy. (2)

  • Oversold

    The point at which prices have moved down in a quick manner. If the market is considered to be oversold, the financial experts will start buying.

  • Overweight

    An investment position that is larger than the generally accepted benchmark. For example, if a market index had a stock or sector which represented 10% of the index (i.e. a 10% weighting) and as an investor you had that index as your benchmark but held more than 10% of the stock/sector in your portfolio, then you would be overweight in that stock/sector.

  • Pair Trading

    The strategy of matching a long position with a short position in two stocks of the same sector. This creates a hedge against the sector and the overall market that the two stocks are in. The hedge created is essentially a bet that you are placing on the two stocks; the stock you are long in versus the stock you are short in. It's the ultimate strategy for stock pickers, because stock picking is all that counts.

  • Paper Loss

    This is the description of a loss which has occurred but has not yet been realised, also called unrealised loss.

  • Paper Profit

    A capital gain on an investment which has not yet been realized is known as paper profit.

  • Passive Management

    Investing in a managed fund (other pooled investment) that attempts to match the risk/return pattern of a market index.

  • Payout Ratio

    The percentage of after tax profits paid out to shareholders as dividends.

  • Pension Plan

    This is a formal scheme or arrangement set up by a corporation, government or other organisation with the intention of paying employees a regular income after they retire.

  • Per cent Long

    The percentage of a fund invested in long positions.

  • Per cent Short

    The percentage of a fund that is sold short.

  • Performance Fee

    The fee payable to a fund adviser on new profits earned by the fund for the period and could be set against the entire gain or against a gain above a set target.

  • Phillips Curve

    The Phillips Curve represents the inverse relationship between unemployment rates and inflation rates. The idea is that when there are lower levels of unemployment, the economy will have higher inflation.

  • Portfolio

    A Portfolio is the combination of all financial assets owned by an individual or financial institution.

  • Portfolio Construction

    The process of creating an investment portfolio

  • Portfolio Optimisation

    This is the practice undertaken when creating an investment portfolio of trying to maximise returns for the given level parameter - usually risk.

  • Portfolio Turnover

    The number of times portfolio of securities is replaced during an accounting period; normally expressed as a percentage.

  • Preferred Stock

    A class of stock with a claim on the company's earnings before payment may be made on the common stock and usually entitled to priority over common stock if the company liquidates.

  • Premium

    The difference between the selling price and the current value of a stock or bond.

  • Price Discovery

    Price discovery is a procedure used to determine the price of a certain asset through an analysis of supply and demand in the market and the behavior of buyers and sellers. This is the method used to find spot prices, which depend on supply and demand levels.

  • Price Earnings Ratio (P/E Ratio)

    The P/E ratio (Price Earnings ratio) of a stock (also called its "P/E", or simply "multiple") is a measure of the price paid for a share relative to the annual Earnings per Share (EPS).

    The price earnings ratio is widely used valuation multiple used for measuring the relative valuation of companies: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with a lower P/E ratio.

  • Prime Broker

    A broker which acts as settlement agent, provides custody for assets, provides financing for leverage, and prepares daily account statements for its clients, who might be money managers, hedge funds, market makers, arbitrageurs, specialists and other professional investors.

  • Prime Rate

    The lowest interest rate charged by commercial banks to their most credit-worthy customers; other interest rates, such as personal, automobile, commercial and financing loans are often pegged to the prime.

  • Principal

    The initial amount of money lent to a borrower. The loan principal has to be repaid to the money lender, but the borrower also pays interest for using the money.

  • Private Equity

    When equity capital is made available to companies or investors, but not quoted on a stock market.<br />
    <br />
    A private equity investment will generally be made by a private equity firm, a venture capital firm or an angel investor. Each of these categories of investor has its own set of goals, preferences and investment strategies; each however providing working capital to a target company to nurture expansion, new product development, or restructuring of the company’s operations, management, or ownership.

  • Private Placement

    A private placement is a security sale to a small number of investors, as defined by Regulation D of the 1933 Act. It is a method of raising capital that does not have to be registered with the SEC.

  • Proprietary Trading

    Occurs when a firm trades financial instruments, with the firm's own money as opposed to its customers' money, so as to make a profit for itself and may use a variety of investment strategies. The firm has decided to profit from the market rather than commissions from processing trades.

  • Prospectus

    The document issued by a company or fund prior to the issue of shares to the public. This sets out the terms of the offer, provides the background and financial and management status of the company.

  • Purchasing Managers' Index (PMI)

    The Purchasing Managers’ Index, or PMI, is based on data that reflects the financial health of companies in the manufacturing sector. The data is collected through monthly surveys of companies and covers different factors, including production, number of new orders, inventories, employment numbers, and other points that measure efficiency. The businesses surveyed report their performance compared to previous months: A PMI higher than 50 means the company has expanded, while a PMI lower than 50 reflects a contraction.

  • Put Option

    An option giving the holder the right, but not the obligation, to sell a specific quantity of an asset for a fixed price during a specific period.

  • Quantitative Analysis

    A security analysis that uses financial information derived from company annual reports and income statements to evaluate an investment decision such as: financial ratios, the cost of capital, asset valuation, and sales and earnings trends.

  • Quantitative Easing (QE)

    Quantitative easing (QE) is a monetary policy that helps increase the supply of money. A central bank will buy securities from financial institutions to lower interest rates. This will increase the money circulating in the economy by raising the cash flowing through financial institutions and increasing liquidity. This also encourages banks to increase loans.

  • R – Squared

    The percentage of a fund's movements explained by returns in a benchmark index, so is a measure of correlation with the benchmark. R-squared values range from 0 to 100; An R-squared of 100 means that all movements of a fund or security are completely explained by movements in the index.

  • Rally

    Rally is a period of sustained increase in stocks, bonds and prices of indexes. This type of situation can take place either during a bull market or a bear market. A bear market rally refers to a rally that occurs after a great amount of downward trend.

  • Real Estate Investment Trust (REIT)

    REIT, or real estate investment trusts, is an entity which invest in real estate and related assets.

  • Rebalancing

    The process of buying or selling securities over time in order to maintain your desired asset allocation. While the term implicates an even distribution of assets, a 50/50 stock and bond split is not required, Rebalancing a portfolio involves the reallocation of assets to a defined makeup no matter what the target.

  • Record date

    The date on which you must be registered as a shareholder of a company in order to receive a declared dividend or, among other things, to vote on company affairs.

  • Redemption Price

    Redemption Price for a bond is the price at which it can be bought back by the bond issuer before maturity date.

  • Refinancing

    Refinancing is replacing an existing debt with a debt obligation, often bearing different and better terms for the borrower. The most popular form of consumer refinancing is for a home mortgage.

  • Registrar

    A trust company or bank charged with the responsibility of keeping record of the owners of a corporation's securities and preventing the issuance of more than the authorized amount

  • Relative Return

    Relative return refers to an asset’s return over a set time-frame, compared to a benchmark. Whereas Absolute Return refers to an asset’s total return over a set time-frame, the Relative Return is the difference between the Absolute Return achieved by the asset and the return achieved by the benchmark.

  • Renounceable Issue

    An issue where the shareholder has the option of either subscribing for new securities or selling that right on market.

  • Repurchase Agreement (Repo)

    A form of short term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day. For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement. Repos are classified as a money-market instrument. They are usually used to raise short-term capital.

  • Return of Investment (ROI)

    The return on investment (ROI) measures the efficiency of an investment or makes an efficiency comparison among a number of different investments. The return of the investment is divided by its cost in order to calculate ROI.

  • Revenue

    Revenue is the income a company generates from its operations over a specific period of time. It is usually generated from the business’ sales to its customers, and is calculated multiplying the number of a good or service sold by their price. Expenses will then be subtracted from the revenue amount to find the net income.

  • Reweighting/Rebalancing

    This means changing the proportion of holdings to asset classes within a portfolio.

  • Rights Issue

    An offer of additional shares to existing shareholders in proportion to their shareholding, usually at a discount to the prevailing market price.

  • Risk Adjusted Rate of Return

    A measure of how much risk a fund or portfolio took on to earn its returns, usually expressed as a number or a rating. This is often represented by the Sharpe Ratio. The more return per unit of risk, the better

  • Risk Arbitrage

    <strong>Risk <a href: "http://en.wikipedia.org/wiki/Arbitrage">arbitrage</a></strong>, or <strong>merger arbitrage</strong>, is an <strong><a href: "http://en.wikipedia.org/wiki/Investment">investment</a></strong> or trading strategy often associated with <strong><a href: "http://en.wikipedia.org/wiki/Hedge_fund">hedge funds</a></strong>.<br />
    <br />
    Two principal types of <strong><a href: "http://en.wikipedia.org/wiki/Mergers_and_acquisitions">merger</a></strong> are possible: a cash merger, and a stock merger. In a cash merger, an acquirer proposes to purchase the shares of the target for a certain price in cash. Until the acquisition is completed, the stock of the target typically trades below the purchase price. An arbitrageur buys the stock of the target and makes a gain if the acquirer ultimately buys the stock.<br />
    <br />
    In a stock for stock merger, the acquirer proposes to buy the target by exchanging its own stock for the stock of the target. An arbitrageur may then <strong><a href: "http://en.wikipedia.org/wiki/Short_selling">short sell</a></strong> the acquirer and buy the stock of the target. This process is called "setting a spread." After the merger is completed, the target's stock will be converted into stock of the acquirer based on the exchange ratio determined by the merger agreement. The arbitrageur delivers the converted stock into his short position to complete the arbitrage.<br />
    <br />
    1) Merger and Acquisition Arbitrage<br />
    The simultaneous purchase of stock in a company being acquired and the sale (or short sale) of stock in the acquiring company.<br />
    2) Liquidation Arbitrage <br />
    The exploitation of a difference between a company's current value and its estimated liquidation value.<br />
    3) Pairs Trading <br />
    The exploitation of a difference between two very similar companies in the same industry that have historically been highly correlated. When the two company's values diverge to a historically high level you can take an offsetting position in each (e.g. go long in one and short the other) because, as history has shown, they will inevitably come to be similarly valued. In theory true arbitrage is riskless, however, the world in which we operate offers very few of these opportunities. Despite these forms of arbitrage being somewhat risky, they are still relatively low risk trading strategies which money managers (mainly hedge fund managers) and retail investors alike can employ.

  • Risk Management

  • Risk Tolerance

    This is the extent to which investors are willing to accept falls in the value of an investment, in exchange for the possibility of higher returns. Investors with a higher "risk tolerance" are more likely to invest in riskier assets, and vice versa.

  • Risk-Free Rate

    The quoted rate on an asset that has virtually no risk. The rate quoted for treasury bills are widely used as the risk free rate.

  • Saving Accounts

    Saving accounts are accounts that are offered and maintained by commercial banks and allow the deposit of money and receive interest on it.

  • Scripophily

    A term coined in the mid-1970s to describe the hobby of collecting antique bonds, stocks and other financial instruments. Values are affected by beauty of the certificate and the issuer's role in world finance and economic development.

  • SEC

    The U.S. Securities and Exchange Commission (SEC) was established to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.<br />
    <br />
    The laws and rules that govern the securities industry in the United States derive from a simple and straightforward concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it, and so long as they hold it. To achieve this, the SEC requires public companies to disclose meaningful financial and other information to the public. This provides a common pool of knowledge for all investors to use to judge for themselves whether to buy, sell, or hold a particular security. Only through the steady flow of timely, comprehensive, and accurate information can people make sound investment decisions.<br />
    <br />
    The SEC oversees the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds. Here the SEC is concerned primarily with promoting the disclosure of important market-related information, maintaining fair dealing, and protecting against fraud.
    The SEC's foundation was laid in an era that was ripe for reform. Before the Great Crash of 1929, there was little support for federal regulation of the securities markets. This was particularly true during the post-World War I surge of securities activity. Proposals that the federal government require financial disclosure and prevent the fraudulent sale of stock were never seriously pursued.<br />
    <br />
    It is the responsibility of the Commission to:<br />
    <br />
    <ul><li>interpret federal securities laws;</li>
    <li>issue new rules and amend existing rules;</li>
    <li>oversee the inspection of securities firms, brokers, investment advisers, and ratings agencies;</li>
    <li>oversee private regulatory organizations in the securities, accounting, and auditing fields; and</li>
    <li>coordinate U.S. securities regulation with federal, state, and foreign authorities.</li></ul>

  • Secondary Market

    A market in which an investor purchases an asset from another investor, rather than an issuing corporation. All stock exchanges are part of the secondary market, as investors buy securities from other investors instead of an issuing company.

  • Sector Fund

    A mutual fund whose objective is to invest in a particular industry or sector of the economy to capitalise on returns.

  • Securities

    General name for all stocks and shares of all types.

  • Securities Lending

    When a brokerage or fund manager lends securities owned by its clients to short sellers.

  • Sell Side

    The sell side includes retail brokers, institutional brokers and traders, and research departments.

  • Settlement

    Conclusion of a securities transaction when a customer pays a broker/dealer for securities purchased or delivers securities sold and receives from the broker the proceeds of a sale.

  • Share Buyback

    A share buyback is when a company buys back its own shares from shareholders, reducing the number of outstanding shares.

  • Sharpe Ratio

    Developed by economist William Sharpe, the Sharpe ratio is a representation of an investment’s performance with adjustments for risk. It represents the excess return per unit of volatility. This helps investors assess performance and decide if an investment is worth the risk. In general, a higher Sharpe ratio indicates better risk-adjusted returns.

  • Short Covering

    Short Covering is the buying of a commodity or security, which has been borrowed and sold in a short sale.

  • Short Selling

    Refers to the practice where investors borrow shares (which they don’t own) in a particular stock from a broker, sell them, and then plan to use the money received from the sale to buy the shares back at what the investors believe or hope will be a lower price in the future to profit from the overall transaction.

  • Short-Term Debt

    Short-Term Debt is debt on the account that stands for the current liabilities in the company’s balance sheet; only debt that is due within a year will be quoted in the account.<br />
    <br />
    A portion of the long-term debt which is due within the same period may also be included in the account.<br />
    <br />
    The short-term loans are represented by operating term loans which are due in a one year period and lines of credit that revolve. These loans serve to finance the daily operations of the company such as the purchase of supplies and inventory, and the salaries of the employees.

  • SICAV

    SICAV stands for Societe D’Investissement a Capital Variable. It is a Luxembourg incorporated company that is responsible for the management of a mutual fund and manages a portfolio of securities. The share capital is equal to the net assets of the fund. The units in the portfolio are delivered as shares and the investors are referred to as shareholders. SICAVs are common fund structures in Luxembourg.

  • Small Cap

  • Smart Beta

  • Spot Price

    The spot price is the price of an asset in a market at any given point in time. Spot prices are different from futures prices, which represent the predicted value of an asset at some point in the future. The spot price can help with pricing futures contracts, where the future price can be determined using factors such as the spot price, the risk free rate, and the maturity date of the contract.

  • Stocks

    Stocks are shares that highlight ownership in a corporation and exemplify a claim on part of the corporation's assets and earnings. Stocks are of two types- common and preferred. Common stock allows shareholders to vote and represent reto receive dividends. However, shareholders of preferred stock have a higher claim on assets and dividends than the common shares, and also have priority in the event a company goes bankrupt and is liquidated.

  • Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor’s loss on a security position. This is sometimes called a "stop market order." In other words, setting a stop-loss order for 10% below the price you paid for the stock would limit your loss to 10%.

  • Strategic Asset Allocation

    This is a way to set and stick to a core group of assets to provide the foundations for an investor's portfolio, with a regular review - and possible rebalancing - of the assets.

  • Strategic Bond Funds

    Invest primarily in higher yielding assets including high yield bonds, investment grade bonds, preference shares and other bonds. The funds take strategic asset allocation decisions between countries, asset classes, sectors and credit ratings.

  • Street Name

    Securities held in the name of a broker instead of a customer's name are said to be carried in "street name." This occurs when the securities have been bought on margin or when the customer wishes the security to be held by the broker.

  • Strike Price

    This is the price at which an option holder has the right to exercise the option. The "strike price" is also known as the exercise price or basis price.

  • Strip Bond

    This refers to the capital portion of a bond after the principal and regular coupon payments have been separated. Holders of "strip bonds" are entitled to the bond’s par value at maturity, but not its annual interest payments.

  • Structured Products

    It is difficult to get a standard definition for what is a bespoke investment vehicle which employs derivatives to create a certain risk-reward profile designed to achieve a specific set of objectives. "Structured products" generally work by using a traditional security, such as an investment-grade bond, and replacing the usual payment features such as periodic coupons and final principal with non-traditional payoffs derived from the performance of one or more underlying assets.

  • Structured Warrant

    These are certificates giving the holder the option to buy the equity security of a debt issuer at a specified price during a certain period.

  • Suitability

    In wealth management, this basically means aligning an investment product or strategy with a client's financial situation and his or her investment needs, objectives, experience and risk profile. An individual investment is not inherently suitable or unsuitable - it depends on who is buying it. "Suitability" is critical, and must be at the heart of the investment process for every client.

  • Swap

    A "total return swap" is a bilateral financial agreement in which one party makes a payment to another based on a set rate, either fixed or variable, in return for payments based on the return of a given asset - typically a loan or bond. The parties do not transfer actual ownership of the assets.<br />
    <br />
    A "dividend swap" is a financial transaction in which an investor exchanges the current dividend of an underlying asset for increased upside equity participation, typically through buying a call option.

  • Swap Option

    The option to enter into an interest rate swap. In exchange for an option premium, the buyer gains the right but not the obligation to enter into a specified swap agreement with the issuer on a specified future date.

  • Systematic Risk

    Systematic Risk, also known as aggregate risk, is risk that exists within a market or market segment as a whole. It is also referred to more generally as volatility, and affects the market overall, rather than individual stocks or sectors. Investors cannot avoid systematic risk through methods such as diversification. Major weather events and other disasters may constitute systematic risk, and so this type of risk cannot be avoided or predicted. This type of risk can have broad implications, including wide-ranging impacts on returns, resource holdings, and income.

  • Systemic Risk

    Systemic risk is the risk that a company event could lead to instability significant enough to cause the collapse of an economy or sector within it. Systemic risk was a factor that led to the 2008 financial crisis. There are certain companies that are considered systemic risks, or “too big to fail,” because their failure would harm the economy or their given industry overall. Companies that are also intertwined with others are considered systemic risks.

  • Systemically Important Financial Institutions (SIFI)

    A Systemically Important Financial Institution (SIFI) is a company deemed by the Federal Reserve to be “too big to fail”. If this type of company were to fail, it could lead to a financial crisis or otherwise be very damaging to the economy as a whole. The financial crisis prompted the Obama Administration to develop legislation that would better regulate these types of firms.

  • Target Redemption Products

    These are index-linked notes which provide a certain guaranteed coupon with the potential for early termination.

  • Tax-Exempt Bonds

  • Tender Offer

    A public offer to buy shares from existing stockholders of one public corporation by another public corporation under specified terms good for a certain time period.

  • Time Horizon

    This represents the length of time an individual will be investing to achieve particular financial goals before liquidating the investment.

  • Time Value

    The amount by which an option's premium exceeds its intrinsic value.

  • Time Value of Money (TVM)

    Also known as the present discounted value, the time value of money is a concept that states money today is worth more than it will be in the future. This is based on the potential of money to earn interest.

  • Top-Down Investing

    An investment strategy which first finds the best sectors or industries to invest in, and then
    searches for the best companies within those sectors or industries.

  • Total Return

    All the return an investment receives on a specific investment over a stated period, including realised or unrealised capital gain or loss, and dividends or interest; expressed as a percentage of the investment’s value at the beginning of the period.

  • Traded Endowment Policy - TEP

    An Endowment Policy is a type of life insurance that has a value that is payable to the insured if he/she is still living on the policy's maturity date, or to a beneficiary otherwise. They are normally "with profits policies". If the insured does not wish to wait until maturity to receive the value they can either surrender it back to the issuing insurance company, or they can sell the policy on the open market. If the policy is sold it then becomes a Traded Endowment Policy or TEP.

  • Traded Options

    Transferable options with the right to buy or sell a standardised amount of a security at a fixed price within a specified period.

  • Transfer agent (TA)

    A transfer agent keeps a record of the name of each registered shareowner, his or her address, the number of shares owned, and sees that certificates presented for transfer are properly cancelled and new certificates issued in the name of the new owner.

  • Treasury Bill (T-Bills)

    Treasury bills are the money market securities used by the U.S. government to raise money from the public. T-bills are short-term securities and mature within one year or less from the day of their issue; typically, three months, six months, or one year.

  • Treasury Bonds

  • Treasury Stock

    Stock issued by a company but later reacquired. It may be held in the company's treasury indefinitely, reissued to the public or retired. Treasury stock receives no dividends and has no vote while held by the company.

  • Trust

    This is a legally-binding document that dictates how an individual wants his or her property and other assets to be held and managed on behalf of certain beneficiaries. This is achieved via a legal relationship where an individual transfers his or her assets to an individual or company, which acts as a trustee, to hold and manage these assets under specified terms of a trust deed for the benefit of stated beneficiaries.

  • Trust Deed

    This refers to a written document which specifies: the rules within which the trust should operate the purpose of the trust, the assets, the powers and duties of the trustee, and the beneficiaries.

  • Trustee

    This refers to a person or organisation appointed to hold, manage or administer assets on behalf of another person for the benefit of the beneficiaries.

  • Turtle Trader

    In 1983, famed commodity traders Richard Dennis and Bill Eckhardt ran an experiment where they taught people without financial backgrounds to trade, testing whether or not great trading could be learned or if it was an innate skill. The term 'turtle trader' came from an article in which Dennis was quoted as saying, “We are going to grow traders just like they grow turtles in Singapore.”

  • Two and Twenty

    Two and twenty refers to the most traditional compensation structure of a hedge fund. The phrase refers to a 2% charge of total asset value and an additional 20% charge of total profits that hedge funds collect from investors.

  • Underweight

    A situation where a portfolio does not hold a sufficient amount of securities to satisfy the accepted benchmark of the portfolio's asset allocation strategy.

  • Underwriter

    An underwriter guarantees to the company that the funds sought through a capital raising issue will be raised and any shortfall will be taken up by the underwriter.

  • Unit Trust

    A form of collective investment constituted under a trust deed.

  • Unlisted Stock

    A security not listed on a stock exchange.

  • Value Stocks

    Stocks which are perceived to be selling at a discount to their intrinsic or potential worth, ie undervalued; or stocks which are out of favour with the market and are under-followed by analysts. It is believed that the share price of these stocks will increase as the value of the company is recognised by the market.

  • VAR (Value at Risk)

    This is a risk measurement technique used to estimate the probability of portfolio losses through statistical analysis of historical price and market trends and volatilities.

  • Vendor

    This refers to an individual or organisation which supplies goods or services for money.

  • Venture Capital

    Money and resources made available to start-up firms and small businesses.

  • Vertical Integration

    Vertical Integration is a method by which a company can increase efficiency by owning elements of its supply chain. An example of this would be a manufacturing company that owns and operates its supplier or distributor. This can reduce certain expenses such as transportation, and save time by driving quicker turnaround. This strategy is not always the most efficient – sometimes it is preferable for companies to use external vendors and service providers.

  • Volatility

    Most investments experience fluctuations in value and price. The degree of fluctuation is known as volatility.

  • Warrant

    The warrant gives purchasers the right, on a specific date and at a fixed price, to purchase a stock. It is a financial security in nature. Similarly to stocks, they can be bought or sold on the market. The individuals who hold them do not collect income but instead, expect to profit from the difference between the sale and the purchase price.

  • Wealth Management

    This is an investment advisory discipline which combines and tailors financial planning, investment, portfolio management, estate and tax planning, and inter-generational wealth transfer.

  • Weighted Average Cost of Capital (WACC)

    Weighted average cost of capital (WACC) is the cost of capital where the different parts of capital (including stocks, bonds, and debt) are all weighted. To calculate the weighted average cost of capital, each category of capital is multiplied by its weight, then all resulting values are added up. A higher WACC means the company is probably not generating value and is thus a riskier investment.

  • Withholding Tax

    Tax deducted from dividends which are paid to investors who are non-residents. Tax can often be reclaimed if there is a double taxation agreement with the investor’s country.

  • Working Capital

    Working capital measures a company’s liquidity, efficiency and its financial well-being in the short term. Working capital is calculated by subtracting a company’s current liabilities from its current assets. The working capital ratio (Current Assets/Current Liabilities) shows whether or not a company has enough assets to pay back its short-term debt. A ratio below 1 is negative working capital, while a ratio above 2 shows that the company isn’t investing extra assets.

  • WRAP Account

    This refers to a professionally-managed investment plan in which a brokerage wraps all expenses, commissions and management fees into a single quarterly or annual fee.

  • Yield

    Yield or the income return on investment represents interest or dividends acquired from a security. Annually, it is expressed as a percentage, based on the current market value or the investment cost.

  • Yield Curve

    A yield curve is a line that predicts the future interest rates of bonds of the same credit quality but different maturity dates. The curve shows yields across different periods of time – for instance, the US treasury debt curve compares interest rates for 3 months, 2 years, 5 years, and 30 years. The yield curve is a point of comparison for other forms of debt and helps predict the outlook for growth.

  • Yield-to-Maturity

    The yield of a bond to maturity takes into account the price discount from or premium over the face amount. It is greater than the current yield when the bond is selling at a discount and less than the current yield when the bond is selling at a premium.

  • Zero Coupon Bond

    A bond that pays no interest but is priced, at issue, at a discount from its redemption price.