New To Trading

Glossary

ADR

ADR is something that grants US investors simpler access to the investing of companies outside of the US, they also grant a number of benefits to those companies abroad, branching their interest outside of their domestic situation.

Alpha

This is when the performance of an investment that has been made has been compared to a benchmark index. 1% alpha for example means that the investment return made was 1% larger than the initial benchmark.

Alternative Investment Market

AIM was created in 1995 by the London Stock Exchange in the aims of becoming a way for the more modern firms to have access to public funds at the time.

Altman Z-Score

The Altman Z-Score’s goal is to show the chances that a company has of filing for bankruptcy within the coming 2 years down the line.

Amortization

Amortization has two distinct meanings: (1) In one sense, it is the practice of reducing the value of assets to properly reflect their value over time. (2) In another, it can mean the servicing of debt in regular increments.

This has two meanings, which are the following:

  1. The practice of reducing an asset’s value to better and more accurately show the value that the asset will have down the line in the future.
  2. The paying of owed debt in multiple or consistency installments.

Annuity

This is something that can continue to provide you with consistent income even beyond your retirement.

Arbitrage

This is a strategy that takes advantage of any price differences in similar markets.

Auditor

This is the person who the law requires to sign off on a firm’s financial statements officially to show that they have been properly researched and conducted.

Backwardation

This is If you own an asset and its price goes above the price of forward delivery.

Balance of Payments

This summarises a country’s financial state and compares it to the financial state of other countries around the world.

Baltic Dry Index

BDI is something that measures the cost of transporting materials across the world by sea.

Bank Of England

This is England’s main bank. This is a bank that was established in 1694 and has since gone on to represent England’s main banking source in terms of lending money to handle the country’s debt at certain points in history.

Beta

This is something that can figuratively measure how risky a share can be.

Bid-offer spread

This is the difference between the price you purchase a share at and the price that you choose to sell the same share at down the line.

Big Bang

This is in reference to the deregulation of the LSE, this happened in 1986.

Bond Duration

This is a measurement system to determine ahead of time how long it should take for a bond to reach its mid-point of cash income.

Bond Rating

There are a number of organisations put in place to prove those with bond ratings to assist you in determining what the level of risk is when getting involved with an issuer.

Bond Yields

If you were to take the usual form of bond yields, which is the annual yield on a fixed income security then this is determined when you take the annual coupon payouts and divide them by the general market price of the initial bond.

Bonds

This is an instrument that measures debt, it is sold by the government to obtain money. People who purchase bonds will obtain interest down the line, which is named a ‘coupon’.

Book Value

This is whatever the total value of the net assets of a company is in association within relation to shareholders. This is calculated when you take the net asset value of a specific company and subtract it from the total liabilities involved.

Bottom-up investing

This swiftly passes over the industry or other outside economic factors and prefers to focus in on individual stocks and companies for a more in-depth and precise viewing.

Bovespa

Bovespa is the Brazilian version of the stock market’s benchmarks.

Break even

This is a point that an option must hit before the buyer of the option is allowed to retrieve their premium.

Bullet repayment loan
This is when a loanee has to repays the capital in a single load at the end of a loan’s term.

Clearing House

Clearing house settles buyer and sellers accounts, then automatically collects the margin and clears the trades along with delivering the reports of the trade to all the parties involved with the trade.

Commodity Forwards

These are contracts that are an agreement between two parties. They are not traded through centralised exchanges however and as a result are considered to be in line with OTC instruments.

Correlation

This is something that described the relationship that two independent values have in relation to each other.

Currency Risk

 If two companies are taking part in cross-border operations, then they are the parties that become most at risk to currency risk. These parties may then experience random profits or losses as a result of currency movements across borders.

CAC-40
This is France’s benchmark for the stock market.

Capital adequacy
This is when a central bank of a nation enforced solvency rations, they ensure that the bank has a level of its own money in relation to the total amount of loans it has within its loan portfolio at any given point in time.

Capital expenditure (Capex)
This is when fixed assets are bought for use by a business.

Capital ratio
This is to stop banks for example bankrupting easily. Regulators will enforce capital requirements upon them in order to prevent this.

Carry trade

The aim to earn income based on the idea that interest rates from banks across the globe differ between one and other.

Cash conversion
This is when you set out on the path to find out how good a company or business is at converting profits into cash flow.

Cash flow

Companies are required to publish annual cash flow statements along with other required publishings.

Chapter 11
This is a law enforced in America to allow companies more time to renegotiate any debts it may owe.

Coco bonds
Some regulators are of the opinion that convertible bonds are the key to stop a bank collapsing in on itself.

Compound interest
Whenever you go and invest your money, you will automatically obtain interest on the capital you have invested.

Contagion
This is a term used to describe the collapse and troubles that are seen with events such as in 2008.

Contango
This is the price of an asset for forward delivery is most often higher than the price you’d pay for the same asset in the modern day.

Contingent liability
This is when a company receives items from someone, along with a receipt that has not yet been paid off, the balance that is still owed on the order will be drawn up, usually before the beginning of the new year.

Continuation vote
This is when a company allows shareholders within the company to hold a vote on whether or not the company should continue.

Coppock indicator
This was originally formed and known as the Trendex Timing Technique, its purpose is to find and purchase signals from the lowest of the low in a lowly populated market.

Cost of capital
To ensure that a company is a success it all comes down to making sure that you make a profit by earning more than what you are spending to run the business.

Cost/income ratio
This a financial measuring system that is of vital importance when it comes to calculating the value of banks.

Country’s current account
This is when a list of a country’s balance of payments is made and it is made up by the current account and capital account of the nation as a whole.

Cov-lite
This is when a lender of money doesn’t require performance conditions upon the loanee.

Covered bonds
This is a form of IOU that is issued by a business, it usually encompasses an offering of fixed rates of interest or a date of repayment that must be adhered to by the issuer of the bond.

Credit default swap
There are two risks when owning a bond. The first being that if the price of the bond were to drop and the second being if the issuer of the bond were to go bankrupt.

Credit rating
This is a rating that a majority of bonds are given to show any potential investors what the chances of a default are like.

Currency risk
This is a risk involved in an unexpected loss or gain or money when it comes to converted prices through different currencies.

Current account surplus/deficit
This is when a country’s position is pit against the rest of the world, often drawing comparisons in their imports and exports.

Cyclical stocks
These depend on the economic cycle at the present time.

Defensive Stocks

These are less common to become invested in cycles than other forms of stocks. They’re usually invested by traders when a slowdown in the economy is one the horizon.

Deflation

This is the process in which the prices that are in place for services and purchasable goods suddenly drop or drop gradually over time.

Derivatives

This is a sweeping statement used to described any number of instruments whose price relies on the performance of outside factors, such as underlying assets or the general financial markets.

Daily repricing
ETFs usually impose this feature; it can affect any expected performances that you have calculated.

DAX
This is the index Germany uses.

Deal-for-equity swaps
This is when a swap is involved where some level of a businesses’ owed debt is eliminated whilst the lenders are provided with shares in return.

Debt swap
The aim of a debt swap is almost always the same, to allow a borrower to refinance and strengthen their balance sheet.

Debt to equity ratio
This is when a businesses’ debt is divided by their equity that they hold.

Debtor and creditor days
If an investor wants to see the level of a firm’s commercial influence, then they may witness how quickly they pay their customers as well as their suppliers of goods.

Defined benefit & defined contribution pensions
This is when you are guaranteed to have an income come your retirement, which is calculated by whatever the percentage of your final earnings are.

Deleveraging
This is leveraging of assets in reverse.

Delta One
This is in reference to the way in which a bank hedges long and short exposures.

Depositary receipt
This lets foreign investors have access to their shares.

Dilution
This is when something is watered down, as seen by dilution, which is usually by doing a process of earnings per share.

Discount rate
Discount rate is a process done that decides how much future income one can expect from an investment they may have.

Discounting
When cash received in the present is represented by that of the future’s money due to inflation eating away at value over a period of time.

Dividend
Company profits that are given out to potential shareholders within the company.

Diversification
Process that involved dividing your total money amongst multiple investments to avoid putting all your eggs in one basket.

Dow Theory
Indicator of when a bear market may be potentially about to burst onto the scene.

Duration
Point of which bonds reach their mid-point of cash flows over a period of time.

Elliott Wave Theory

This is a theory that is used to predict any potential future market fluctuations.

ETF

Exchange-Traded Funds are securities. Their purpose is to follow underlying index as well as being marketable. ETFs have no limit on what they have encompass such as bonds, investments, stocks and over time they will include cryptocurrencies.

Earnings per share
A way of finding out a share’s true innate value.

EBITDA and EBITA
EBITDA takes profit and adds two subjective costs. These two subjective costs are the following: depreciation and amortisation.

Economic indicators
Stats that show usual and reoccurring trends within the economy.

Enterprise value
Shows a company’s total value through adding the market value of their equity and net debt to show what someone may pay for it down the line.

Equity risk premium
If purchasing a share, every investor who is purchasing is expected to have a goal of a particular return in their head.

EV to sales ratio
Short and long term debt subtracted from cash.

Exchange-traded fund (ETF)
ETF combines traits of a share with the traits of those of a bunch of collective funds.

Fed Put

The “Fed Put” is the widespread belief that the US Federal Reserve (commonly referenced as “the Fed”) can always rescue the economy by decreasing interest rates.

This is a belief that the Fed always has the potential to save the economy by simply lowering the interest rates.

Fibonnaci

This is a theory that follows the line of a sequence of number. The sequence is followed by adding up the two previous numbers together. Indicators and other various decisions can be found by following this line of sequences through this theory.

Foreign Exchange Reserves

These are funds that are being held in a foreign country’s mainline and central banking. These funds are held in the case that those holding the funds need to pay for liabilities.

FCF yield
This determines whether or not a business may be cheap or overpriced basing itself upon their cash flows.

Final salary and money purchase pensions
Pension size depends on value of retirement fund.

Fixed assets
A phrase that is a blanket statement for all assets that are intended to be kept on for over a year.

Flipping
Buying a property and waiting for an increase in price before then selling it on for a profit.

Foreign exchange reserves
Collections of foreign currencies.

Free cash flow
A calculation of the total amount of cash a business has left over upon meeting their operating obligations for that period of time.

Free cash flow per share
Dividing the yearly cash flow that is able to pay dividends and dividing it by the total amount of shares that are issued out at that point in time.

Free cash flow yield
Ratio that is used to determine the cash flow return on shares as a %

FTSE 100
The UK’s stock market.

Futures
Futures are contracts that are tradeable either be selling as a price or an asset at an agreed time frame.

GDP
A measuring of a total amount of goods made by a nation in a certain amount of time is known as a Gross Domestic Product.

Gearing
Relationship that is established between debt, equity in a company and the money that is loaned out to shareholders.

Gilt
Gilt = Government body.

Gilt yield
The potential returns on a bond as a %

Going concern
This is when an auditor determines that a company is in line to remain in business beyond the present moment in time.

Goodwill
Goodwill is determined by what a business’ reputation is seen as.

Gordon’s growth model
A way of valuing shared basing it upon the business’ dividends down the line in the future.

Greenspan put
Option contract that goes higher in value as the initial pricing of the original underlying asset lowers.

Gross margin
Gross margin is one of the ways that a business can have its profits measured.

Hang Seng index
Hong Kong’s index for stocks.

Hedonic accounting
Countries often measure the quality of the goods being received to accommodate inflation.

Indices

These provide snapshots of any given segment of a market at a certain point in time.

Information Ratio

This works in the pursuit of calculating the risk-adjusted return of an asset portfolio. An asset portfolio is simply a collection of assets that have been acquired over time.

Index-linked gilts
Sterling bonds issued by BOE and bonds that are listed upon the LDE.

Index fund
This tracks the performance of any index on the market.

Individual savings account (Isa)
A way for an individual to save without having to pay income or capital gain tax as a result.

Individual Voluntary Arrangement (IVA)
An alternate option to bankruptcy that can be reaches if an agreement on how the debt clearance can be achieved.

Interest cover
Compares profits before tax to determine the interest rate that should be charged.

Interest rate swap
Deal made between 2 separate investors.

Investment trusts
A business who makes it their business to invest their funds in other businesses.

ISEQ
ISEQ is Ireland’s national indice.

Keynesian economics
John Maynard Keynes suggested that the only way to make sure constant economic stability is for the government to become involved in the economy.

Kospi
South Korea’s stock market.

Leverage
Leverage can increase earnings, but at the same time it can also increase losses.

Leveraged buyout
This is when an investor group purchases a company by using money that have loaned.

Libor and the OIS
Libor is London Interbank’s rate, and IOS is the US’ comparable rate.

Limited company
The liability that the shareholders have is capped to whatever they have put into the business themselves.

Liquidity
In reference to the ease in selling or acquiring an investment.

Lloyd’s
Insurance market that regulate activities of companies that may be offering insurances to people for a variety of reasons.

Loan-to-value ratio
A risk assessment that is used to decide whether to not to set somebody up with a mortgage for example.

Low volatility
Buying shares that have a tendency to fluctuate in price.

M&A arbitrage
Profiting from a company purchasing another company or two businesses combining.

Margin
A margin is an initial deposit that is required.

Margin of safety
Gap between buy price and the price that the asset may be worth in the future.

Margin trading
This is when an investor put up a % of the total cost they spent on an asset they have bought.

Market makers
Banks and brokerages are usually the ones who make the markets.

Marking to market
Updating one’s portfolio to make it up to date with the newest and most up to date prices of the market.

Maturity transformation
When a bank acquires a short-term source of finance and turns it into a long-term loan.

Mean, median and mode
Three ways of calculating an average.

Mezzanine finance
Layer between two others.

Misery index
When you add the unemployment rate to a rate of inflation.

Money laundering
An activity that attempts to convert money acquired through illegal activities into legit money.

Money markets
Blanket term for covering the vast market for short-term loans.

Money multiplier
The underlying principle of credit creation.

Money supply
The total amount of money that is within the economy.

Monoline
A company that has specialty within a certain financial area.

Moving average
Average of the last few days’ share prices.

Market cap weighting
When businesses in the index become ranked by their total market value.

Nation’s current account
 Measures goods being imported and exported from a nation.

NAV
NAV is amount of money remaining if an asset was closed.

Net working capital
To determine the Net working capital, take away a company’s current liabilities from its current assets that it has.

Nikkei 225
Japan’s stock market.

Nominal value of a bond
Bonds have fixed values; these are nominal values.

Off-balance-sheet finance
Loanees can now raise finance without having to show any liability on the balance sheet at the end of the day.

Open-ended investment company (OEIC)
Modern version of a unit trust.

Operational gearing
The relationship that is established between a company’s fixed and variables.

Opportunity cost
This is the return you could have earned if you had chosen to use your money elsewhere rather than where you chose.

Output gap
Difference between economy’s output and the output that could be achieved if the industries of the economy were going all-out.

Over the counter (OTC)
Private transactions that are conducted.

Pairs trade
Traders who make it their aim to profit from changes in price in comparisons to another share.

Payback period
Period that determines how long an investment will take to repay.

PIK note
Avenue that allows companies to loan money.

Piotroski score
Used to discover high-quality companies by looking through separate categories and criteria.

Placing
This is when a place is contacted by a firm and offered blocks of shares.

Plaza Accord
An agreement reached between American, West Germany, UK, France and Japan in 1985.

Ponzi scheme
Illegal operations that are named after Charles Ponzi, he had taken deposits from upwards of 35,000 investors, promising them immense returns for their investment.

Price to book ratio
Calculated by dividing current share prices by book value per share.

Price to cash flow ratio
A measurement of the market’s expectation of how a firm will perform in the future.

Price to sales ratio
Market cap divided by annual sales of a company.

Price/earnings (P/e) ratio
Swift and simple way of knowing a company’s general value.

Prime broker
Investment banks that have the ability to sell clients a service.

Private finance initiative (PFI) / public-private partnership (PPP)
This is a way of a private sector incorporated businesses in financing project such as schools and other public sector projects of a similar ilk.

Prop trading
Banks taking a risk with their own capital to attempt to make money as a result.

Purchasing power parity
Theory that seeks to determine how over or undervalued a currency is in comparison to another currency.

Put option
Option to sell an asset for a fixed rate on a particular date.

Puts and calls
Puts we have already established; a call gives one the right to purchase.

Real and nominal
Terms used to describe prices that have or have not been adjusted to accommodate inflation.

Recession
Fall in inflation adjusted domestic product for more than two quarters back to abck.

Repo
Sale and repurchase agreement.

Return on capital
Useful measuring assistance for determining the performance of a business.

Return on capital employed (ROCE)
Ratio that determines the profitability of a company by using the total money amount it deploys.

Return on equity
Measuring a year’s earnings alongside shareholder’s equity.

Return on invested capital (ROIC)
Ratio that determines how good a company is at obtaining profits from assets.

Sharpe Ratio

This ratio is a way to calculate how much of a return is going to be achieved on each individual unit of risk involved.

Sortino Ratio

This is a way for traders to calculate the risk-adjusted performance of the portfolios that they have collected over time. This helps and aides them in deciding how much return is possible per each individual unit of risk.

S&P 500 index
America’s cyclical indices.

Securitisation
Mortgage arranged on a loanee’s home, if things were to go south the home can be seized and resold.

Share buyback
Companies often buy back existing shares alongside issuing new ones.

Share options
Option to purchase or sell shares at a past price regardless of the present price.

Short squeeze
Prices can rise when a large collection of short sellers all aim for the same exact stock.

Shorting
Traders can still acquire profit on an asset by shorting their asset if they believe the price is due to plummet.

SIPP
A form of DIY pension.

Smart beta
Combines the most effective aspects of passive and active management.

Sovereign wealth fund
A fund owned by the state that come about through running with other nations.

Special drawing rights
Allows members of a nation to gain access to surplus currency that is being held by another member nation.

Spread
 Spread is a gap and is how brokerages gain their profit.

Spread betting
A way of leveraging financial markets.

Stagflation
Mixture of prices on the rise and falling.

Stamp duty
This is a form of re-registration tax. You pay this form of tax whenever you purchase a registered asset.

Stock splitting
Increases the total amount of a company’s issued shared by dividing the already existing shared that it has issued.

Stop-loss
An instruction that is put in place to place a limit on the amount of losses that gain be gained.

Synthetics
Combo of financial instruments that are made to copy another single security.

Treynor Ratio

This measures return per unit of risk. This is extremely similar in purpose to that of the previous two mentioned ratios in the glossary.

Taiex
Taiwan’s stock market index.

Tangible common equity
Determines how big of a hit a bank can have impact it before the shareholder’s total equity is non-existent anymore.

Tangible book value per share
This is the total value of all the assets a company has minus the liabilities.

Target 2
This is a payment system that all of the central banks across Europe use for emergency and important electronic money transfers.

Technical analysis
People who attempt to predict the price of a share by looking at the movements of the price in the past.

Tier-one capital
The highest quality of capital.

Time value of money
The time value of money. The lower the amount you withdraw the sooner you have to pay it back.

Trade surplus
A positive balance of trade is what occurs when a nation’s exports are higher than its imports.

Treasuries
An IOU issued by the central bank to the government.

Utilities
These are businesses that provide necessities such as electricity and water.

Value at risk (VAR)
This is a process that attempts to understand the odds of you losing your money on a portfolio.

Velocity of money
This is the measurement of how the economy is performing based upon the speed of which available money is being spent.

Vertical integration
When two companies merge to form a bigger company.

Vix (volatility index)
Reflects how volatile traders seem to expect the market to be performing in a year from the present time.

Volatility
Reflects the movements of prices.

Warrants
Security that is issued by businesses and moved around the market, similarly to shares.

Wholesale money markets
Wholesale refers to funds that are loaned or lent in large amounts.

Working capital
Total of a businesses’ current assets minus their current liabilities.

Yield curve
Highlights the bond between the yield securities and maturities.

Yield on cost
Highlights a businesses’ dividend return as a %.

Z score
Shows the chances of a company filing for bankruptcy within the next 2 oncoming years.

Zero
A form of share or bond that can be issued.

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