Glossary of terms frequently used in share dealing.
Advisory: Service to investors from a Stockbroker who gives advice on what shares to buy and sell.
AGM: Annual General Meeting, attended by the company’s shareholders. Votes are held to re-appoint the directors and company matters are discussed. Normally held 21 days after the annual report is published.
AIM: Alternative Investment Market, a UK trading market for smaller companies looking to raise finance. ‘AIM’ listed companies do not supply as much information as ‘London Stock Exchange’ fully listed companies when listing onto the market and are therefore considered riskier investments, but also offer investors opportunities for rapid capital growth of their investment.
Allotment Letters: These letters are sent out in a rights issue and inform the shareholder that they have the right to buy new shares at a stated price, known as the ‘call’. We will advise you on any action required by you on shares you hold with us for these actions.
Annual Reports and Accounts: Public Limited Companies are obliged to make these available to shareholders. They set out the company’s yearly financial performance. They can also usually be found on the company’s website.
Analysts: People employed by financial organisations who look at companies and markets making recommendations to buy/sell or hold a company and market trend predictions.
Arbitrage: Attempt to make profit without risk by simultaneously buying and selling a securitiy at two different prices in different markets.
Ask Price: More usually referred to as the ‘Offer Price’, is the price at which an investor may buy shares from the market. The ‘Bid Price’ is the opposite.
At Par: At a price equal to the face value of a security.
BACS: A computerised payment system for Direct Debit payments from and credits to bank accounts.
Bank of England: The UK’s central bank that recommends monetary policies, interest rates and regulates retail banking.
Bar Chart: Chart type providing more data than line charts, with each bar indicating the opening and closing price range during the period.
Basis Point: One basis point is one-hundreth of a percentage point (0.01%).
Bargain: The term used when a purchase or sale of shares is agreed.
Bear: Someone who believes that prices of a market or asset are going to fall. Opposite of a bull.
Bid: Price at which a financial instrument is sold and at which a part is prepared to buy. The opposite to the ‘Ask Price’.
Bid-Ask Spread: Difference between what buyers are willing to pay and the price the sellers are asking.
Bollinger Bands: Charting tools showing price volatility: bands will widen if recent data is more volatile and if the prices break out of the band it is considered a significant move.
Bull: Someone with a positive view of a market or assset. Opposite of a bear.
Call Option: Option contract giving the right but not the obligation to buy at a predetermined price and date. Opposite of a put option.
Candelstick Chart: Similar to a bar chart, depicting opening, high, low and closing prices. Candlesticks have a ‘body’ which is solid when the closing price is less than the open and empty when the close is greater. Top of the body indicates the opening price if the candle is solid or closing price if the body is empty; ‘wicks’ show the highest and lowest traded prices.
Capital Gain: Profits you make when you sell a stock are called ‘Capital Gains’. If you make a loss, it is called a ‘Capital Loss’.
Capital Gains Tax: Tax due on any capital gains made.
Capitalisation: Refers to the ‘Market Capitalisation’ of the company – the number of shares in issue multiplied by the current share price, used to describe how big the company is.
Cash Dividend: Cash payment per share held, usually twice per year as an ‘Interim’ and ‘Final’.
Certificate: Paper issued to share holder confirm how many shares in the company they hold, now usually held in a ‘Nominee Account’.
CFD: See Contract for Difference.
Chartist: Someone who analyses markets using charts showing historical data to make decisions on an index, company or asset. See Technical Analysis.
Commission: The amount a Stockbroker charges a client for executing an order.
Commodity: Physical substance traded on an exchange, including ‘energies’ such as crude oil, metals and ‘soft’ (agricultural) commodities such as sugar or coffee.
Composite Tax Vouchers (CTVs): These are paper vouchers you receive to advise how much dividend you have received each six months and are used to calculate any tax return.
Consideration: The cost of the shares purchased or sold before charges are added.
Consolidated Tax Certificate (CTC): Sent out annually detailing what payments a client has received from. Again you should keep your CTC for your tax submission.
Contract Note: These confirm your purchases and sales showing the market, unit of trading (i.e. buy or sell), price, taxes (i.e. Stamp Duty) and commission.
Contract for Difference (CFD): Contract that will deliver a profit or loss based on movement in the price of a market or asset between the time at which the contract is opened and the time at which it is closed.
Corporate Actions: The term for company activities which may affect their share price, such as mergers, takeovers and rights issues. Should an action effect you we will advise you of any action you need to take.
Covered Warrant: Security issued by a financial institution, giving the holder the right to acquire a share or bond at a specific price and on a specific fixed date.
CREST: Electronic settlement system for shares for UK companies. Holds ‘Dematerialised Shares’.
Cum: the opposite of ‘ex’, it is used to denote rights and entitlements that come with a share when it is purchased or sold, for example ‘Cum-div’ means bought with any dividend due.
DAX 30: Leading German stock index, made up of 30 largest companies on the Frankfurt exchange.
Day Trading: Opening and closing a position on the same day, trading on short-term market movements.
Dematerialised Stock: These are shares held in electronic accounts within CREST, instead of in a paper ‘Certificate’ format and make selling easier and quicker to carry out.
Derivative: Financial contract such as CFD, future, option or spread bet, with a value based on that of a security such as a stock or bond, an asset or a market index.
Direct Market Access (DMA): Process that allows private stock market traders and investors to place their buy and sell orders on the central limit order book and trade directly with other market participants, rather than via a market maker.
Discretionary Management: You authorise your Stockbroker to make all decisions on buying and selling shares for you in your ‘Portfolio’. Also called ‘Portfolio Management’ and is the most expensive way of dealing in shares.
Dividend: The distribution of profits to shareholders. Usually paid in pence per share twice per year into your ‘Nominee Account’ with ‘CREST’ or by cheque if you hold your shares as a ‘Certificate’. Dividends are not guaranteed.
Double Witching Day: The last trading day before expiry of options and futures on the same underlying asset.
Dow Jones Indutrial Average: Leading US stock index, made up of 30 of the largest US companies.
Emerging Markets: The analyst’s favourite jargon used to describe less well established stock markets, for example Mexico or Africa.
Encryption: Is used to protect sensitive data transmitted via computers, such as transactions and e-mail messages and stops people reading the message other than the sender and the recipient.
Equities: The ‘Ordinary Share’ capital of a company and the most frequently traded.
Exchange-Traded Commodities (ETCs): Investment vehicles traded on an exchange that track the performance of an underlying commodity.
Exchange-Traded Funds (ETFs): Securities traded on a stock exchange tracking an index, or basket of individual stocks or commodities.
Ex-dividend: The period usually about six weeks before a company pays out it’s a ‘Dividend’. If you buy the share during this period you are not entitled to that ‘Dividend’.
Execution Only: This type of dealing without advice is the cheapest level of dealing for investors and can be via a Stockbroker or through on-line trading.
Fibonacci Retracement and Extensions: Mathematically based systems used by technical analysts to forecast areas of support or resistance and determine target prices.
Fill: Excution of a buy or sell order.
Fill or Kill: Instruction to execute a trade in full or cancel it.
Financial Services Act 1986: The Act which established the system of self-regulation for financial services and a series of regulatory bodies.
Financial Conduct Authority (FCA): Chief regulator for financial service industry in the UK.
Financial Services Compensation Scheme (FSCS): Investors are likely to be covered by the provisions of the Financial Services Compensation Scheme (FSCS), if Beaufort Securities ceases trading. It can award up to £50,000 (increased from £48,000 in January 2010) in compensation to any one investor where they decide that an investment business is in default and is unable to satisfy any claims against it. Full details of the FSCS detailing the restrictions and financial limits that apply are available on request from the FSCS. You can contact them on 0207 892 7300 or at www.fscs.org.uk. You can also write to them at FSCS, 7th Floor Lloyds Chambers, Portsoken Street, London E1 8BN.
Flotation: When a company’s shares are offered for investors to buy and listed for the first time.
FTSE 100: The index of the UK’s top 100 companies, by ‘Market Capitalisation’ usually consisting of ‘Blue Chips’. Other indexes include the top 350 companies ‘FTSE 350’ and ‘FTSE 250’.
Fundamental Analysis: Examination of a company’s ‘fundamentals’ – e.g. financial performance, assets, management, market niche and products – to detrmine its share value. Also research into an economy, considering information such as GDP, interest rates, pay-rolls and unemployment levels.
Gearing/Leverage: Use of credit to increase exposure to risk and/or reward. Indicated by the ratio between the potential profit or loss on a trade and the initial deposit.
Good for the Day (GFD): A buy or sell order valid only for the day of placement.
Good Till Cancelled (GTC): A buy or sell order valid until cancelled or until the underlying contract has expired.
Gross: A sum of money before the deduction of taxes or commissions.
Hedge: Transactions that reduce rick, offsetting exposure by opening an opposite position.
Holding: The number of shares you own in a company.
Hostile Takeover: Where one company tries to buy another company against the latter’s wishes.
ICAP Securities & Derivatives Exchange: An unregulated market for small UK companies to raise finance. Often the first market a small company will list on to develop its business.
Illiquid Market: A market with insufficient volume, resulting in disproportionate price movements and wide spreads.
Individual Savings Account (ISA): Tax efficient investment wrapper, which allows investors to shelter investments including shares away from ‘Capital Gains Tax’.
Insider Dealing: The purchase or sale of ‘Securities’ based on information before its public release, which affects the share price. It is a criminal offence.
Interim Dividend: The company’s distribution of profits to shareholders halfway through the year. Dividends are not guaranteed.
Interim Report: A report released after the first 6 months of the financial year by all companies on the stock exchange. It reveals how well the company is trading and can move prices up and down.
Investment Club: A group of investors, usually friends or work colleagues, who contribute monthly to a central fund to invest in shares.
Investment Trust: A UK company (listed on the London Stock Exchange), which invests in other companies.
Initial Public Offering (IPO): Initial Public Offering – the offering of shares to investors to buy prior to a market listing of a company.
ISDX: See ‘ICAP Securities & Derivatives Exchange’ above.
Junk Bond: A bond rated ‘BB’ or lower because of its high default risk. Also known as a “high-yield bond” or “speculative bond”.
Keynesian Economics: An economic theory stating that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability.
Lapse: In a ‘Rights Issue’, when you decide to do nothing, the company may sell the rights and give you the value received less commissions. This is called lapsing.
Level 1: Share price information including latest bid and offer prices, mid-price, volume and session highs and lows.
Level 2: Live pricing system that provides data showing full market depth.
Leverage: See Gearing.
LIFFE: The London International Financial Futures Exchange, part of NYSE Euronext.
Limit Order: Instruction to carry out a trade, by buying or selling, should the price hit a more favourable level than the current market price; aimed at securing potential profits – e.g. placing a buy if the price falls to a specific level.
Line Chart: Simple linear chart displaying closing price data over a selected period.
Liquidity: This term refers to how easy it is to buy and sell a share. If there is a shortage of buyers or sellers, if the price is too high or if there are few market makers prepared to buy or sell the share, the share can be illiquid and therefore not easy to sell or buy. A stock easily sold or bought is therefore liquid.
LME: Common abbreviation of the ‘London Metal Exchange’.
Long: Buy position that will benefit from a rise in the market price.
LSE: Common abbreviation of the ‘London Stock Exchange’.
MACD, or Moving Average Convergence/Divergence: Technical analysis term for the crossing of two exponentially smoothed moving averages.
Main Market: ‘LSE’ main market for UK and international ‘Securities’.
Market Capitalisation: The number of shares in issue of a company multiplied by the share price. Used to calculate the size of a company and which index it belongs to, for example ‘FTSE 100’.
Market Index: An index, such as the ‘FTSE 100’. Usually expressed as a rise or fall in value of the market daily.
Market Maker: Market Makers are the firms or ‘Securities Houses’ who make a market in a share. They quote their prices for Stockbrokers to buy or sell to.
Market Size: The number of shares a ‘Securities House’ is willing to deal in at the quoted price.
Mergers: When two or more companies join together to form one company.
Momentum: Strength behind a price movement recognised by traders and used to take advantage of upward or downward trends.
Moving Average: Indicator showing the average value of a security’s price over a set period. Generally used in technical analysis to measure momentum and define areas of possible support and resistance.
Net: Is the money you receive after deductions have been made for tax and charges.
New Issues: Companies that are listing on a market for the first time, or the issue of extra shares to raise money.
Nominal Value: This is the face value of the share, but not the value at which people are buying and selling the share in the market. Also known as ‘Par Value’, usually a few pence.
Nominated Advisor: An ‘LSE’ approved adviser for ‘AIM’ listed companies. Companies listed on ‘AIM’ must at all times have an adviser to comply with the listing regulations.
Nominee Account: Are accounts which hold securities on behalf of a client or grouped together for a firm, registering them electronically. We use a company called Raven Nominees to hold together clients holdings. We recommend holding shares in nominee form as you remain the owner and they can then be sold easily through CREST as they are electronically logged onto the account. You can also check your holding through your account on-line.
Normal Market Size: Simply put this is the normal maximum size ‘Market Makers’ will quote a price. Deals above that size are quoted separately to the Stockbroker.
Offer Price: The price at which you buy. You sell back at the ‘Bid Price’.
Open Offer: Existing shareholders here are offered an entitlement to purchase extra shares up to the same size as their current holding in the company.
Open Position: A trade currently active.
Option: Instrument giving the right to purchase (call) or sell (put) a fixed amount at a specific price within a certain time limit.
Order: Buy or sell instruction to a broker or dealer. A limit or stop loss order is an instruction for a future trade at a price not currently available.
Ordinary Shares: The most common shares in issue and the most frequently bought and sold by ordinary investors.
Pairs Trading: Hedging strategy that involves matching a long position and a short position, normally in shares within the same sector.
Per Point/Pip/Tick: Term used to describe an amount of price change in a market. ‘Per point’ or ‘per pip’ refers to the unit movement required to alter the profit or loss on your position. A tick is the smallest possible movement, up or down, in the price of a security.
Placing: A new issue of shares sold privately through a group of financial institutions.
Portfolio: Your selection of shares in different companies that you have bought.
Price Earnings Ratio (P/E Ratio): Investors use this measure to define the future growth prospects of a company. The higher the figure the higher they anticipate company earnings to be in the future. Many new hi-tech companies have a high P/E ratio reflecting investors hope of good earnings in the future but with very low earnings at present. Conversely investors seeking income look for a low P/E ratio as this indicates stability and the prospect of a company being able to easily grow earnings thus increasing profitability and therefore ‘Dividends’.
Privatisation: A common term in the UK since the 1980’s as nationally owned companies were listed onto the market by government to raise finance for investment and to allow people to buy shares and own a part of the businesses.
Prospectus: A document issued by, or on behalf of, a company when looking to invite potential investors into buying shares. Prospectuses are most commonly used during a flotation.
Proxy: This allows you, the shareholder to vote even though you can’t attend the meeting.
PTM Levy: A nominal charge of £1 on deals over £10,000, paid to the Panel for Takeovers and Mergers which regulates company take overs and mergers. It is automatically added to any deal you complete over £10,000.
Put Option: An option contract giving the right, but not the obligation, to sell a specified asset at a predetermined price and date in the future. Opposite of a call option.
Quote: An ‘RSP Market Maker’ provides a quote when an enquiry is received. A two-way quote is a ‘Bid’ and ‘Offer’ price. A quoted company is one in which you can buy shares
Range Trading: Buying at the low end and selling at the high end of a price range, in the belief respectively of a rise or a fall.
Real Time Quote: Stock or bond quote showing the security’s most recent price, as opposed to a delayed quote.
Record Date: The date when a company ‘Registrar’ reviews which shareholders are due dividends.
Registrars: Companies whose job it is to maintain and update the company register, which is the list of shareholders in a company.
Relative Strength Index (RSI): Technical analysis indicator used by traders as the signal of an overbought or oversold condition in the market.
Relevant Market Hours: The hours which the market You are attempting to deal on is open for business and accepting trades.
Resistance Level: Price level above which it is difficult for a price to rise, as indicated by analysis of charts.
Retail Price Index (RPI): Retail Price Index, representing movements of prices within the UK for household goods, i.e. cookers, TVs. The index shows the rate of inflation in the economy.
Retail Service Provider (RSP): Retail Service Provider. The term used for a ‘Market Maker’ that provides quotes to Stockbrokers for their retail customers.
Rights Issue: When a company is looking to raise finance current shareholders are offered the opportunity to buy more shares in proportion to their current holding, at a cheaper price than the market price. Companies do this to raise money to expand or pay off debts.
Risk: Possibility that the return from a position will be worse than expected, resulting in a loss.
Rollover: Where a position that is due to expire is closed and transferred into the next relevant monthly or daily contract.
Running Profit/Loss: Amount you would gain or lose if your open positions were closed at current market prices.
Save As You Earn (SAYE): Employer run scheme for employees to buy shares in the company they work for – usually at discount prices.
Scrip Dividend: When a dividend is paid, shareholders can have the option to receive it as additional shares, instead of cash.
Scrip Issues: These occur when the price of a share becomes very high. A high price makes the share difficult to buy and sell, i.e. ‘illiquid’. To resolve this, the shareholders receive free shares to increase the number of shares in the market and lower the price to affordable levels thus helping ‘liquidity’ making it easier to buy and sell.
Securities: The term given to stocks and shares issued by companies.
Securities House: The term for a bank/financial institution that conducts business in ‘Securities’.
Self-Regulatory Organisation: A body that authorises and regulates firms conducting financial services business, for example Stockbrokers are authorised and regulated by the ‘Securities and Futures Authority’.
Stock Exchange Electronic Trading System (SETS): Stock Exchange Electronic Trading System. The order driven electronic trading system for dealing in ‘FTSE 100’ and ex ‘FTSE 100’ equities.
Settlement: The term used to describe the transfer of shares for payment between a buyer and seller.
Short: Sell position opened in expectation that the market price will fall.
Slippage: Difference between the level of a stop loss and the price at which it is executed – normally happens during periods of high volatility.
Spot: Contract for immediate or ‘on the spot’ delivery, as opposed to a futures contract with a future expiry date. In FX, denots the immediate exchange of currencies.
Spot Market: Market in which commodities are bought and sold for cash and immediate delivery.
Spread: The difference between prices to buy and sell a share, usually expressed as a percentage.
Spread Bet: A bet on the outcome of an event, where the pay-off is based on the accuracy of the wager.
Spread Trading: American term for spread betting.
Stag: The term used to refer to an investor who applies for a ‘New Issue’ in the hope of selling the stock quickly in order to make a quick profit when the company lists.
Stochastic: Literally meaning random measures overbought and oversold conditions in the market. A slow stocastic is an indicator used by traders to hlp track changes in momentum.
Stop Loss Order: Order to close a position at a particular level when the price moves against you.
Strike Price: Price at which an option contract may be exercised.
Support and Resistance: Points where the forces of supply and demand meet. Support is the price level at which demand is thought to be strong enough to prevent a price from falling further. Resistance is the level at which selling is thought to be strong enough to prevent the price from rising further.
Support Level: Price level below which it is difficult for a price to fall – i.e. the price floor, as indicated by the study of charts.
Swing Trading: Type of short to medium-term trading triggered by technical analysis, in which the trader aims to profit from cyclic market changes, i.e. price ‘swings’.
T+: The number of days before ‘Settlement’ of a trade will take place. ‘T+5’ indicates ‘Settlement’ will occur five business days after the transaction day. T+2 is the standard LSE settlement period for Equities.
Technical Analysis: Study of a financial market by charting its performance, identifying trading patterns, levels of support and resistance and buy/sell signals; used as the basis for creating a trading strategy and placing orders.
Tender Offer: An offer where potential investors are invited to apply for shares indicating how much they are willing to pay for the shares on offer.
Tick: Term used for the smallest possible price movement in a contract, with the tick size the minimum point movement in the market.
Trading Range: Range between the highest and lowest prices of a security or market.
Underlying Asset or Market: Security or market from which a trading instrument’s prices are derived.
Undervalued: A financial security or other type of investment that is selling for a price presumed to be below the investment’s true intrinsic value. A undervalued stock can be evaluated by looking at the underlying company’s financial statements and analyzing its fundamentals, such as cash flow, return on assets, profit retention and capital management, to determine said stock’s intrinsic value.
Volatility : Describes the swing of a share’s price, a high volatility factor means large swings up and down in the price.
Volume: Refers to the number of shares traded, usually per day.
Warrant: Tradable derivative product allowing the holder to buy securities at a certain price over a certain period.
Windfall Shares: Free shares given to members of a building society or a mutual insurance company when it becomes a ‘Public Limited Company’.
XD: A symbol used in stock transaction tables found on the internet and in newspapers to indicate that a stock is trading ex-dividends or ex-rights.
Yield: The annual dividend received from a share as a percentage of the price of the share. For example share price £1.00, dividend 10p, yield therefore 10%.
Zero-Coupon Bond: A debt security that doesn’t pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.