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Absolute return definition
The absolute return, in investing terms, is the return on an investment expressed in monetary or percentage terms. For example, if £10,000 is invested and it grows to £15,000 when it is cashed in, then the absolute return on that investment is £5000, or 50%.
Accumulated distribution definition
Accumulated distribution is a term related to exchange traded funds (ETFs) trading, meaning that the ETF in question reinvests any income and dividend payments back into the fund.
Accumulation fund definition
Accumulation funds automatically reinvest any profits or gains in the hope of making more profits or gains, rather than paying them out to investors.
Acquisition definition
When one company decides to take over another one, it is referred to as an acquisition. The acquiring company will do this by purchasing either the majority or entirety of the ownership stake of the company being taken over.
Active investment definition
Active investment is a form of investment strategy that involves actively buying and selling assets in the hope of making profits and outperforming a benchmark or index.
Active managers definition
Active fund managers implement the strategy of an investment fund and manage the trading activities. It the human element of fund or wealth management.
ADR definition
An American Depositary Receipt (or ADR, for short) is a way in which US investors can trade shares of non-US companies without using their local exchanges.
Advisory definition
In investing terms, advisory means being in a position to offer advice. An advisor is a person or company responsible for making investment decisions on behalf of investors, usually for a fee.
AER definition
The annual equivalent rate (AER) shows you how much interest you would earn on a savings account, taking into account compounded interest and any introductory bonus interest rate you get. It is designed to make it easier to compare the interest you will receive over a year between different savings accounts.
AIM definition
AIM is a stock market for smaller, growing companies owned by the London Stock Exchange. It used to be known as the Alternative Investment Market, which is how it came by its name.
Alpha definition
Alpha is a measurement of the performance of an investment portfolio against a benchmark. The alpha is the return the fund or portfolio makes, relative to the return of the benchmark.
American depositary receipt definition
American depositary receipts (ADRs) are US-listed securities that represent single shares, or specified numbers of shares, in foreign companies.
Annual report definition
Annual reports are documents released by listed companies, providing their shareholders a detailed overview of their annual performance.
Annualised return definition
An annualised return is the average amount earned by an investment each year over a certain period of time if the annual return was compounded. Compounding means investment returns, from one year to the next, are dependent on each other.
Annuity definition
Annuity is a financial product that turns contributions into a pension fund into regular income once a person retires. In that way it is a type of insurance product, swapping pension savings into guaranteed regular income for the rest of a person’s life.
Appropriate definition
The Markets in Financial Instruments Directive (MiFID) is the legislation used to regulate investment services within the European Economic Area. The rules outlined within MiFID (which was reformed in January 12018 under MiFID II) require investment services firms to assess the appropriateness of complex instruments for a client before providing the relevant service.
Ask definition
The ask refers to the price at which you can buy an asset or security from a seller. It can be variously referred to as ask, the ask, or asking price.
Asset classes definition
The various types of financial instruments are called asset classes, and they come under four broad categories. Asset classes are defined by the similar characteristics of the instruments within them, such as behaviour on the market, laws and regulations.
Assets definition
Assets can be defined in two ways in trading, dependent on whether they are in connection with a company or a financial instrument.
Authorisation definition
Providers of financial services, investment firms and consumer credit companies in the UK have to be authorised by UK Financial Conduct Authority (FCA). The likes of banks, credit unions and insurance companies are all regulated by the FCA and the Bank of England’s Prudential Regulation Authority.
Authorised participant definition
An authorised participant (AP) is a recognised body that has a relationship with an ETF provider to create or redeem exchange traded funds (ETFs). Most APs are market makers or large investment houses.
Base rate definition
The base rate, or base interest rate, is the interest rate that a central bank – like the Bank of England or Federal Reserve – will charge to lend money to commercial banks.
Basis point definition
A basis point (also referred to as bp – pronounced bip or beep) is a unit used in trading to describe movements in interest rates or other percentages. It is equal to one hundredth of one percent, or 0.01%.
Bear definition
Bears are traders who believe that a market, asset or financial instrument is going to head in a downward trajectory. In that regard, they hold an opposite view to bulls, who believe that a market is going to head upwards.
Bear market definition
When the market is on a sustained downward trajectory, with little optimism from traders to bring about a rally, it is referred to as a bear market.
Benchmark definition
Benchmark is a comparative tool used as a point of reference against which to measure your investment portfolio’s performance. By using a benchmark that’s in line with your risk tolerance and the nature of your investment, you should gain a better understanding of how your portfolio is doing in comparison to the market.
Best execution definition
Best execution refers to a broker’s duty to execute client orders at the most favourable terms for a client.
Beta definition
A financial instrument’s beta is a measure of its risk or volatility when compared to the wider market.
Bid definition
In trading and investing, the bid is the amount a party is willing to pay in order to buy a financial instrument. It is the opposite of an ask, which is the price that a seller will take in order to part with a financial instrument.
Blue chip definition
Blue chip is a term used in share dealing meaning a company (or shares in a company) that is reputable, financially stable and long-established within its sector. These companies are referred to as blue-chip stocks, or simply as blue chips.
Blue chip stocks definition
Blue chip stocks are the shares of companies that are reputable, financially stable and long-established within their sector.
BoE definition
The BoE is a popular shortening of the Bank of England, the central bank of the United Kingdom.
Bond trading definition
Bond trading is one way of making profit from fluctuations in the value of corporate or government bonds. Many view it as an essential part of a diversified trading portfolio, alongside stocks and cash.
Bonds definition
Bonds are a form of financial investment that involve lending money to an institution for a fixed period of time. They usually come in two varieties: corporate bonds and government bonds, depending on the type of institution you are lending to.
Bottom line definition
A company’s bottom line is an important factor in share trading. Variously, it can be used to refer to the net earnings or earnings per share (EPS) of a business.
Brent crude definition
Brent crude – also referred to as Brent blend – is one of three major oil benchmarks used by those trading oil contracts, futures and derivatives.
Broker charge definition
A broker charge is a fee paid to an agent or company for facilitating a transaction between a buyer and a seller. It might be a charge for sales or negotiation services, or for providing advice about the transaction.
Broker definition
A broker is an individual or company that places trades on behalf of a trader. They can do so in a number of different asset classes, with the most well-known being stockbroking.
Bull definition
Bulls are speculators who believe that a market, instrument, or sector is going on an upward trajectory. This belief puts them at odds with bears, who take a pessimistic view on a market’s direction.
Bull market definition
When a market, instrument or sector is on an upward trend, it is generally referred to as a bull market.
Buy definition
Buying a financial instrument means taking ownership of it from someone else, whether it is a commodity, stock or another asset.
Capital expenditure definition
Capital expenditure, or CAPEX, is the term used for the money spent by businesses on physical assets. It’s an important part of understanding a company’s accounts.
Capital gains definition
Capital gains are the profits made from the buying and selling of assets. They are made when traders sell assets – like shares or commodities – for more than they originally paid for them.
Capital gains tax definition
Capital gains tax (or CGT), is the tax levied by the government on the profits made from financial asset sales. CGT regulations and levels vary from country to country.
Capital loss definition
When a trader sells an asset at a lower price than they initially paid for it, they have incurred a capital loss.
Capital risk definition
Capital risk is the risk of an investor losing part, or all of their principal investment. Capital risk is limited to the amount one has invested.
Cash drag definition
Cash drag is a term associated with exchange trade funds (ETFs), referring to the delay between when an ETF receives a dividend and when it uses the proceeds.
Cash flow definition
Cash flow is the amount of money coming into and going out of a company’s accounts, as reported in earnings announcements. It can refer to a single project or the entire business.
Chartist definition
A chartist is a trader who relies predominantly on charts to help them understand a financial instrument’s historical price movements, in order to better predict and to speculate on its future performance.
Clearstream definition
Clearstream is a leading European supplier of post-trading services. It is the clearing house of Deutsche Borse Group, which runs the Frankfurt Stock Exchange. Clearstream International was formed in January 2000 through the merger of Cedel International and Deutsche Borse Clearing. The full integration of Clearstream was completed in July 2002.
Closet indexing definition
Closet indexing involves an active fund manager managing a fund so that it closely, but not exactly, tracks the performance of the fund’s benchmark index.
Closet trackers definition
A closet tracker is a fund that is supposed to be actively managed but in fact is run in a hands off manner and only manages to make returns akin to those of a real tracker fund.
Closing price definition
An asset’s closing price is the last level at which it was traded on any given day. This price is often determined by an auction.
Collateral definition
Collateral is an asset that a borrower uses to secure a loan or other form of credit from a lender. Lenders can seize the collateral offered if the borrower fails to make the payments due under the loan agreement. A common and simple example would be someone securing a large bank loan using their house as collateral, which the bank will seize control of if the borrower does not keep up with the loan repayments.
Collective investment scheme definition
A collective investment scheme, also sometimes known as a pooled investment, is one to which many investors contribute.
Commission definition
Commission is the charge levied by an investment broker for making trades on a trader’s behalf.
Commodity definition
A commodity is a basic physical asset, often used as a raw material in the production of goods or services.
Compound interest definition
Compound interest is a means of calculating the potential return from an investment that takes the cumulative effect of interest into account.
Concentration ratio definition
An industry’s concentration ratio is the size of a certain number of firms in an industry compared to its total size. It is used to calculate one or more firms’ dominance of their sector.
Corporation tax definition
Corporation tax is a tax levied on the profits that a company earns in a financial year.
Counterparty risk definition
Counterparty risk (also called ‘default risk’) is the risk to each party of a contract that the other party will not live up to its contractual obligations.
Coupon definition
A coupon (also knowns as the coupon rate, coupon percent rate and nominal yield) is used to define the annual interest applicable on a bond. This is expressed as a percentage of the face value of the bond.
CPI definition
The consumer price index (CPI) is a measure of inflation, which in turn is the rate at which prices for goods and services are rising.
Creation units definition
Creation units are the blocks of securities that comprise ETF. They are also known as creation baskets.
Credit rating definition
A credit rating estimates the ability of a borrower to meet their financial commitments based on previous performance.
Credit risk definition
Credit risk, also known as credit exposure, is the risk of a borrower defaulting on required payments, resulting in a loss to the lender.
Crest definition
CREST – Certificates Registry for Electronic Share Transfer - is the electronic system for holding financial securities. They settle transactions in the UK, and also handle Irish stocks. CREST allows share and bondholders to store assets in electronic form, instead of holding paper certificates, and it also offers same-day clearing for securities transactions.
Crest depositary interest definition
A Crest Depository Interest (CDI) is a UK financial security that represents a stock traded on a stock exchange outside the UK. CDIs are issued by CREST, and one CDI is the equivalent of one share of an eligible foreign stock.
Cumulative preference shares definition
Cumulative preference shares give the holder the right to dividends that may have been missed, or reduced, in the past. Companies may pay reduced dividends, or even halt paying dividends for a time, and when they resume then cumulative preferred shareholders must receive all the dividends in arrears, before holders of common shares can receive dividends once more.
Currency hedged definition
Currency hedging, also known as foreign exchange/forex hedging, is the act of entering into a financial contract in order to protect against movements in foreign exchange rates. Financial investors and businesses use hedging like an insurance policy, and tend to use the likes of futures contracts or options to achieve this.
Custodian definition
A custodian is a person or institution that holds an investor’s securities, either digitally or physically, for safekeeping.
Dark pools definition
Dark pools are networks – usually private exchanges or forums – that allow institutional investors to buy or sell large amounts of stock without the details of the trade being released to the wider market. Dark pools can also be referred to as dark pool liquidity, or dark liquidity.
Day order definition
A day order is a type of order, or instruction from a trader to their broker, to buy or sell a certain asset.
Debt ratio definition
Debt ratio is an indication of how much debt a company is holding, when compared to the value of its assets. It can also be applied to individuals: in which case it is the cost accrued by their debt compared to total income each year.
Deferred tax definition
Deferred tax is an accounting practice used when a company owes a tax liability. Instead of paying this at that current time, the company becomes responsible for settling it at a point in the future.
Defined benefit definition
A defined benefit pension scheme, also sometimes known as a final salary pension scheme, is one in which an employer promises an employee a specified payment once that employee retires.
Defined contribution pension definition
A defined contribution pension scheme is one in which an employer, and sometimes the employee too, contributes an amount or a percentage of the employee’s earnings into an investment fund that’s then used to buy a pension when the employee retires.
Deflation definition
Deflation, in contrast to inflation, is a general decrease in the price of goods and services. More specifically, it happens when the rate of inflation is less than 0% or when, over time, the value of money increases.
Delta one definition
A delta one product is a derivative which has, or is close to having, a one-to-one relationship with an underlying asset in terms of price movements. In other words, when there’s a change in the underlying product’s value, you would expect to see the derivative price move in the same direction and with a similar magnitude.
Dematerialisation definition
In trading terms, dematerialisation refers to the move to using electronic book keeping to record transactions and asset storage, rather than using paper securities certificates.
Depreciation definition
Depreciation is the term given to the decline in an asset’s value, either due to market conditions or other factors like wear and tear. It is the opposite of appreciation.
Designated investment exchange definition
A designated investment exchange is nominated by the issuer of a security as the exchange on which their security will be traded. They operate outside the UK, but work similarly to UK exchanges.
Designated investment products definition
Designated investment products are securities or contractually-based investments as defined by the UK Financial Conduct Authority (FCA); they do not include funeral plan contracts. The FCA outlined what is classed as a designated investment product under Part III of the Regulated Activities Order.
Developed markets definition
A developed or an advanced market in investing terms is a country that is most developed in terms of its economy and financial markets.
Discretionary definition
In trading, ‘discretionary’ means that an investor is allowing their broker or fund manager to invest on their behalf without the investor having to authorise individual trades.
Dividend definition
A dividend is the portion of profit that a company chooses to return to its shareholders, usually expressed as a percentage.
Dividend reinvestment definition
Dividend reinvestment means reinvesting dividend payments from stocks you hold back into your stock or investment portfolio rather than spending them. This may involve taking the dividend paid by each individual stock and using it to buy more shares of the same stock, or may involve buying other stocks or assets as part of a portfolio to help spread the risk. By reinvesting dividends, an investor could benefit from increased value growth from his or her increased stock holdings as well as increased dividend income from subsequent dividend payments.
Dividend withholding tax definition
Dividend withholding tax is the tax a company must take off a dividend before the payment is made to the shareholder. This is then passed onto the government in which the share is domiciled.
Domicile definition
Domicile refers to the place where an individual has a permanent home. You can only be domiciled in one country at a time. A domicile is acquired at birth, and is normally determined by your father’s domicile.
Drawdown definition
A drawdown can be one of two things. It can either be the decline in an asset price or a portfolio value over a specific period from peak to trough or high to low, or the proportion of a pension that a retiree withdraws each year.
Earnings per share definition
Earnings per share, or EPS, is an important metric in a company’s earnings figures. It is derived from the total amount of profit generated in a period, divided by the number of shares in the company listed on the stock market.
EBITDA definition
EBITDA stands for ‘earnings before interest, taxes, depreciation and amortisation’. It is calculated by taking away the above figures from a company’s total revenue, to give an idea of the profit made before tax and other financial factors are taken into account.
EMEA definition
EMEA stands for Europe, Middle East and Africa. It is commonly used by companies, institutions and other organisations.
Emerging markets definition
Emerging markets are economies that show some of the traits of developed economies but aren’t quite at the same level yet.
Enterprise Investment Scheme definition
The Enterprise Investment Scheme is a UK-government backed scheme that aims to encourage investing in small, unlisted companies and start-ups by offering a series of tax reliefs to individual investors who buy shares in the companies.
Equity definition
In trading, equity can mean several different things. However it usually comes down to the ownership of an asset without any debt involved.
Equity options definition
Equity options are a form of derivative used exclusively to trade shares as the underlying asset.
ESG investing definition
ESG investing, sometimes also known as responsible investing, means putting money into assets where environmental, social and governance (ESG) issues are being measured and compared and these are the key drivers of an investment decision.
ESMA definition
The European Securities and Markets Authority (ESMA) is an independent EU authority that works to preserve the stability of the EU’s financial system. It ensures that investors across member states are protected and that financial markets are kept in check.
ETC definition
ETC stands for exchange traded commodity. It is a type of exchange traded product (ETP), like exchange traded funds (ETFs) or exchange traded notes (ETNs).
ETF definition
ETF stands for exchange traded fund, a type of investment security that is bought and sold on exchanges.
ETF provider definition
An ETF provider is a company that makes exchange traded funds (ETFs). Some of the major ETF providers include iShares by BlackRock and Vanguard.
ETN definition
ETN stands for exchange traded note. It is a type of exchange traded product (ETP), meaning it is traded on exchanges like exchange traded funds (ETFs) and exchange traded commodities (ETCs).
ETP definition
Exchange traded products, or ETPs, are a variety of financial instruments that are traded throughout the day on national exchanges.
Euroclear definition
Euroclear is a major clearing house, handling post-trade processing for equity, bond, ETF, and mutual fund transactions.
Ex-dividend definition
Companies, particularly those listed on stock markets, will often pay dividends to their shareholders. It’s a reward to the shareholders for lending the company money by buying its shares, and the fact the company can afford to pay some of its profits to its shareholders is a sign that it’s in good financial health and confident about its own future. The steady income provided by dividends can persuade an investor to buy a stock.
Exchange definition
An exchange is a marketplace where financial instruments – such as commodities, stocks, or derivatives – are traded. They can be either physical, like the New York Stock Exchange, or purely digital like a bitcoin exchange.
Execution definition
In trading, execution is the completion of a buy or sell order from a trader. It is carried out by a broker.
Execution-only definition
Execution-only is a level of service offered by a broker that does not involve any personal investment advice, and gives you complete control over how you trade the markets. It can provide a cheaper way for investors to trade on financial markets than advisory services.
Expiry date definition
The point when a trading position automatically closes is known as the expiry date (or expiration date).
Exposure definition
In share dealing, your exposure would be equal to the total amount you had spent on opening positions.
Factsheet definition
A factsheet is a basic guide to a particular fund, an informational document that provides answers to fundamental questions that an investor might have.
Fair value definition
In many companies, the fair value of stock can be subject to much debate among investors.
FCA definition
The FCA, or Financial Conduct Authority, is the United Kingdom’s financial regulatory body. It is the successor to the FSA, or Financial Services Authority.
Federal Reserve definition
The Federal Reserve bank, or the ‘Fed’ for short, is the central bank in charge of monetary and financial stability in the United States. It is part of a wider system – known as the Federal Reserve system – with 12 regional central banks located in major cities across the US.
Fill definition
Fill is a trading term that refers to the completion of an order to trade a financial asset. When an order has been completed, it is often referred to as ‘filled’.
Financial adviser definition
A financial adviser is a person whose job is to provide financial advice to clients. They should provide specialist advice on how the client should manage their money and assets, and should therefore have a strong understanding of investments, savings, and wealth management. They may offer a range of services, including investment management and estate planning.
Financial Policy Committee definition
Established in its current form on 1 April 2013, The Financial Policy Committee is an independent committee at the Bank of England (BoE). Its primary focus is monitoring and trying to sustain economic growth in the UK, as well as identifying and avoiding potential systemic risks.
Fitch definition
Fitch Ratings is a credit ratings, commentary, and research provider. It is one of the big three providers of ratings for investment instruments, alongside S&P Global and Moody’s Investors Service.
Fixed costs definition
Fixed costs are the costs incurred by a company that do not vary with the scale of production. They are one of two main types of cost associated with companies’ balance sheets: the others are variable costs.
Fixed interest definition
In investing terms, fixed interest is a specified level of interest that doesn’t change over time. The opposite is a variable interest where the amount of interest earned can fluctuate depending on certain factors.
Flexible ISA definition
Flexible individual savings accounts (ISAs) allow holders to withdraw money and then replace it within the same tax year without it counting towards that year’s ISA allowance.
Floatation definition
A floatation is a process when a new company or an existing private limited company becomes a public limited company by issuing shares to the general public. A floatation takes a company public by listing it on a stock exchange, and involves issuing a prospectus to outline what the company’s strategy is and what the business plans to do with the funds it raises by issuing shares to new investors.
FOMC definition
The FOMC, or Federal Open Market Committee, is the branch of the Federal Reserve bank that is in charge of short and long-term monetary policy decisions.
Forex definition
Forex is how market participants convert one currency to another. It can variously be referred to as foreign exchange, FX, or currencies.
Forex trading definition
Forex trading is the act of taking part in the forex market in order to speculate and attempt to make a profit. It can also be known as FX trading, foreign exchange or currencies trading.
Fractional shares definition
A fractional share is a portion of one full share. You normally can’t buy fractional shares, but you may end up with them as a result of stock splits or dividend reinvestment plans. However, brokers can batch fractional shares together to create whole shares which can then be bought or sold.
French PEA definition
A plan epargne d’action, or PEA, is a tax-efficient investment wrapper for residents of France.
FSCS definition
A common abbreviation for the Financial Services Compensation Scheme.
FTSE definition
FTSE stands for the Financial Times Stock Exchange. The FTSE indexes are owned by FTSE Russell, part of the London Stock Exchange Group. The best known indexes are the FTSE 100, made up of the largest 100 companies trading on the London Stock Exchange, and the FTSE 250, made up of the next largest 250 companies on the exchange.
Full replication definition
In investments, full replication refers to a type of physically replicated ETF that holds equities in all of the constituents of the benchmark it is designed to track.
Fund manager definition
A fund manager implements the strategy of an investment fund and manages its trading activities. An investment fund is a pool of money provided by investors into the fund. The manager’s job is to generate returns on the investments according to the strategy of the fund. There may be more than one manager for a fund.
Fundamental analysis definition
Fundamental analysis is a method of evaluating assets on the basis of external events and influences, as well as financial statements on the asset itself.
GDP definition
GDP stands for gross domestic product, or the total value of the goods and services produced in a country over a specified period. It is used as an indicator of the size and health of a country’s economy.
Gilt definition
A gilt is a UK government bond that’s denominated in British pounds. They’re issued by the Debt Management Office (DMO) on behalf of HM Treasury.
GIPS definition
The Global Investment Performance Standards (GIPS).
Global depositary receipt definition
Global depositary receipts (GDRs) are listed securities that represent single shares or specified numbers of shares in foreign companies. GDRs are bought and sold on stock markets like regular shares. They are very similar to American Depositary Receipts, but GDRs are traded on stock markets outside the US, like the London Stock Exchange, whereas ADRs are issued by US banks and traded on US exchanges only.
Gold ETF definition
A gold ETF is a type of exchange traded fund (ETF) that is designed to move up and down in price as the market price of gold bullion moves up and down. It is one of the most popular forms of exchange traded commodity (ETC).
Gross margin definition
Gross margin is a way of measuring the amount of profit a company can make from its revenue.
Growth fund definition
A growth fund is a fund that invests using a growth investment style. Typically, it will be invested in a diversified portfolio of growth stocks.
Growth investing definition
Growth investing describes an investing style that focuses on capital gains.
Growth stock definition
A growth stock is a listed company whose revenues and earnings are expected to grow at a fast rate relative to the rest of the market.
Hedge definition
A hedge is an investment or trade designed to reduce your existing exposure to risk. The process of reducing risk via investments is called 'hedging'.
Hedge fund definition
Hedge funds are investment partnerships that use pooled funds, and sometimes borrowings, to try and generate significant returns for their investors. The funds use an array of investment strategies to try and earn an active return known as alpha. Hedge fund managers are generally very sophisticated investors who will often use leverage and derivatives to try and bolster returns, while investors in the funds are accredited or qualified wealthy institutions or individuals who are required to keep their money in the fund for a minimum amount of time.
Inception date definition
An inception date refers to the date when something officially starts or when something was originally created. This could refer to the date when a company is created (and formally registers with the likes of Companies House, for example) and begins trading, or the date of when a policy (such as an insurance policy) begins.
Income distribution definition
Income distribution is a term used in exchange traded funds (ETFs) for when any income or dividend payments are redistributed to investors in the form of a payment.
Income fund definition
An income fund is a fund that invests using an income investment style. Typically, it will be invested in a diversified portfolio of stocks with relatively high dividend payments or generate returns through interest-paying assets like bonds.
Income tax definition
Income tax is tax that you pay on most types of income, including money earned from employment, profits made by the self-employed, some state benefits, most pensions, rental income and income from a trust.
Index definition
In trading, an index is a grouping of financial assets that are used to give a performance indicator of a particular sector. The plural term is indices.
Index providers definition
In trading, index providers calculate and distribute stock and other asset class indices. One of the important roles of the index provider is to classify and define markets, as their indices represent a market, or a proportion of a market, and provide a benchmark of performance for that market or sector.
Inflation definition
Inflation is the increase in the cost of goods and services in an economy. As that in turn means that each unit of the currency’s economy is worth less of any good or service, inflation can also be viewed as a devaluing of currency.
Inflation risk definition
Inflation risk, also referred to as purchasing power risk, is the risk that inflation will undermine the real value of cash flows made from an investment.
Inheritance tax definition
Inheritance tax is a government tax levied on the ‘estate’ (property, money, possessions) of a deceased person.
Insider dealing definition
Insider dealing, or insider trading, is an illegal activity that involves making an investment based on information that is not available to the general public.
Interest definition
In finance, interest can have more than one definition. Firstly it refers to the charge levied against a party for borrowing money, which can be either a cost or a means of making profit for a trader. Secondly, it can mean the portion of a company’s stocks held by a particular shareholder.
Interest rate risk definition
Interest rate risk is the risk that an open position could be negatively affected by exposure to changing interest rates.
Interest rate risk in bonds definition
Bonds are affected by interest rate risk most directly, as base rate change tends to have an inverse relationship to the price of bonds.
Interest rate swap definition
An interest rate swap is an agreement to exchange interest payments from a financial instrument for interest payments from another financial instrument.
Interest rates definition
The amount that a lender charges to a borrower for the loan of an asset, usually expressed as a percentage of the amount borrowed. That percentage usually refers to the amount being paid each year (known as annual percentage rate, or APR) but can be used to express payments on a more or less regular basis.
Investment capital definition
A trader’s investment capital is the portion of financial resources they have available for trading. It could be in the form of money or other assets.
Investment grade definition
Investment grade is a rating applied to a municipal and corporate bond with a low risk of default.
Investor definition
An investor is any person who devotes capital to an investment in the hope that they will see a return from it. However, in the investment community, investors tend to have a different attitude to investing than traders.
IPO definition
When a company embarks on an IPO (which stands for initial public offering) it goes public on a stock exchange. This can also be known as floating, flotation, or just ‘going public’.
ISA definition
ISA stands for individual savings account, a form of UK investment that is exempt from tax on its returns.
ISIN definition
An International Securities Identification Number (ISIN), is a unique identifier code for a specific securities issue, including stocks, bonds, futures, warrants and options.
Junior ISA definition
Junior ISAs are tax-free savings accounts for those under the age of 18 and living in the UK. As with ISAs for adults, there are two types: a cash Junior ISA and a stocks and shares Junior ISA. Money can be invested in both types, as long as the total amount invested in one year doesn’t go over an annual cap.
Key Features document definition
A document that financial service providers are obliged to offer retail clients before they open certain investment or savings products. It must outline the main characteristics of the financial service in a simple format, so the potential client can decide whether it is right for them.
Key Investor Information Document (KIID) definition
The Key Investor Information Document (KIID) is a document that provides key information about investment funds, in order to help a potential investor compare different investment funds and assess which fund meets their specific needs.
Large cap definition
Large cap stands for large capitalisation and is a term used to group stocks and shares. Sitting above mid-cap and small-cap stocks, large-cap stocks generally have a valuation, or market capitalisation, of more than $10 billion.
Leverage definition
Leverage is a concept that can enable you to multiply your exposure to a financial market without committing extra investment capital.
Leveraged ETFs definition
Leveraged ETFs are a form of exchange traded fund (ETF) that seek to deliver multiplied returns of the underlying benchmark they track. For instance, if the FTSE 100 increases 10% in a day, a 2x FTSE ETF will aim to increase 20%.
Leveraged products definition
Leveraged products are financial instruments that enable traders to gain greater exposure to the market without increasing their capital investment.
Liabilities definition
A company’s liabilities are the debts and obligations represented on its balance sheet. They are the opposite of assets.
Life policy definition
This refers to a life insurance policy. The purpose of life insurance is to protect individuals from suffering financial hardship as a result of someone’s death. An individual that takes out a life insurance policy makes premium payments to the insurer. If the policyholder dies, the insurer pays a death benefit to the deceased policyholder’s family or next of kin, the amount of which is based on the amount of premium payments made during the policy.
Limit order definition
A limit order is an instruction to your broker to execute a trade at a particular level that is more favourable than the current market price.
Limit up / limit down definition
Limit up and limit down are the maximum amounts a commodity future may increase (limit up) or decrease (limit down) in any single trading day.
Liquidity definition
A market’s liquidity is the ease with which it can be bought or sold without affecting its price. It’s an important factor to consider when trading financial markets – opening and closing a position on a highly liquid market is easier and generally less risky than on an illiquid one.
Liquidity risk definition
Liquidity risk is a type of market risk. It refers to a situation where buyers and sellers are unable to find matching orders to take the other side of their trades. When this happens, buyers may have to increase the price they are happy to pay and sellers may have to reduce their asking price in order to break the stalemate.
Long definition
When used in trading, long refers to a position that makes profit if an asset’s market price increases. Usually used in context as ‘taking a long position’, or ‘going long’.
Lot definition
A lot is a standardised group of assets that is traded instead of a single asset.
Market capitalisation definition
A company’s market capitalisation is the total value of its outstanding shares on the market. It is also referred to as market cap.
Market data definition
In investments, market data is the data reported on various assets and financial instruments by trading companies and exchanges.
Market definition
Market can have several meanings within investments. Generally it is defined as a medium through which assets are traded, with their value determined by supply and demand.
Market order definition
A market order is an instruction from a trader to a broker to execute a trade immediately at the best available price.
Merger definition
When two or more companies decide to combine and become one entity, it is called a merger.
Mid cap definition
Mid cap stands for middle capitalisation and is a term used to group stocks and shares. Sitting between large- and small-cap stocks, mid-cap stocks used to have a valuation of between $1 and $5 billion but more recently are defined as having a valuation of between $2 and $10 billion.
MiFID definition
The Markets in Financial Instruments Directive (MiFID) was first implemented in November 2007 to regulate the provision of investment services by financial institutions within the EU. Its primary focus is to increase competition and consumer protection.
MiFID II definition
The Market in Financial Instruments Directive (MiFID) is the regulatory legislation for firms offering financial instruments to clients. It focuses on firms providing services in shares, bonds, units in collective investment schemes and derivatives.
Moody’s definition
Moody’s Investors Service is a US-based provider of bond ratings, research, and risk analysis. It is one of the big three providers of ratings for investment instruments, alongside S&P Global and Fitch Ratings.
Morningstar definition
Morningstar is a US-based provider of global investment research for individuals, financial advisers, asset managers, pension plan providers and institutional investors.
MSCI definition
MSCI Inc provides equity, fixed income and hedge fund stock indexes as well as tools and analytics for institutional investors. It targets its range of products to asset owners, chief investment officers, active and passive investment managers and chief risk officers.
MTF definition
Under MiFID in European law, a multilateral trading facility provides a different venue for investors or investment firms to trade on formal exchanges.
Multiplier effect definition
The multiplier effect is an economic term for when changes in money supply are amplified from the knock-on effects of economic activity.
Mutual fund definition
A mutual fund is an investment fund of pooled money from many investors.
Nasdaq definition
Founded in 1971, Nasdaq is best known as one of the world’s biggest equity exchanges. It was one of the first all-electronic exchanges and has attracted the listings of some of the biggest technical companies in the world including Microsoft, Apple, Intel, Cisco, and Oracle.
Net asset value definition
A fund’s net asset value (NAV), refers to the underlying value of its holdings if they were all to be immediately sold, usually divided by the number of shares in circulation.
Net income definition
Net income is the total amount of profit (often known as earnings) made by a company, listed in its earnings report.
Nil-rate band definition
The nil-rate band is the value of an estate that is not subject to UK Inheritance Tax (IHT).
NISA definition
NISA stands for new ISA. It is a variant of the individual savings account that was brought in by the Chancellor of the Exchequer at the time, George Osborne, in 2014.
Nominal definition
The first definition refers to share prices. Every public company determines what the nominal price of its shares will be, which can also be known as the ‘par value’ of each share. Once a nominal share price has been set, the company cannot sell any shares for an amount below that nominal value.
Nominee definition
A nominee is an individual or business chosen to manage assets or undertake transactions in, say, securities or other assets on behalf of another individual or business, which retain ownership of the asset in question.
Non-cumulative definition
Non-cumulative is relevant to preferred stock, or preference shares.
NS&I definition
National Savings and Investments (NS&I), formerly known as the Post Office Savings Bank and National Savings, is the UK’s state-owned savings bank and was founded in 1861.
NYSE definition
The New York Stock Exchange (NYSE) is one of the world’s best known stock exchanges. Some of the biggest companies in the US are listed on the exchange, including oil company ExxonMobil, bank Citigroup, pharmaceutical company Pfizer and conglomerate General Electric. It is located in Wall Street in New York City.
OCF definition
Investment funds charge two types of fees. The first is a ‘one-off’ charge, whereby the fund will take a percentage of an investor’s money on entry. The second refers to the ongoing charges figure, which takes the wide variety of costs of running the fund into account, such as operating costs, annual management charge (AMC), administrative costs and transaction charges incurred as a result of buying or selling investments.
OEIC definition
An open-ended investment company (OEIC), is a type of collective or pooled investment fund in the UK. Money from many investors is pooled together, and professional fund managers will buy securities like stocks, bonds, and property according to an investment strategy.
Offer definition
Offer is the term used when one trader expresses an intention to buy an asset or financial instrument from another trader or institution.
Oil ETF definition
An oil ETF is a type of exchange traded fund (ETF) that offers a way of taking advantage of volatility in the price of oil. Different oil ETFs will do this in different ways – some might comprise of companies in the oil and gas industry, and some might invest in the commodity itself.
Open definition
Open has several definitions within investing. It can refer to the daily opening of an exchange, and an order or position that has not yet been filled or closed.
Open offer definition
An open offer is a secondary market offering that allows existing shareholders in a company to purchase new shares in the business on a pre-emptive basis and at a lower price, or discounted rate, to the prevailing market value.
Open positions definition
Your open positions are the trades you have made that are still able to incur a profit or a loss. When a position is closed, all profits and losses are realised and the trade is no longer active.
Open/closed-ended investment definition
In investments, the terms open-ended and closed-ended are used to designate whether a fund has an open or fixed number of shares in circulation.
Order definition
In trading, an order is a request sent to a broker or trading platform to make a trade on a financial instrument.
Ordinary share definition
Ordinary shares, also known as common shares, are issued by publicly listed companies. Typically, the shareholders are entitled to one vote per share, and any ordinary dividends paid by the company. The other type of shares listed companies may offer are preferred shares.
OTC definition
OTC stands for over-the-counter, and refers to a trade that is not made on a formal exchange. It is often also referred to as off-exchange trading.
P/E ratio definition
P/E ratio is an important metric used to assess the relative value of a stock (or sometimes an index or industry). It is calculated as its share price divided by earnings per share (EPS).
Participating shares definition
Participating preferred shares, give the holder the right to receive dividends paid to preferred shareholders.
Passive investment definition
Passive investment is an investment strategy which seeks to track a benchmark or an index, rather than outperform it (the aim of active investment).
Passive management definition
Passive management is an investing style whereby investment portfolios try and generate returns that mirror the returns of the underlying constituents of the portfolios. Portfolios may be built using exchange traded funds (ETFs) which track the performance of a stock index or other underlying security. For this reason, index investing is a type of passive strategy.
Passporting definition
Passporting is the term used when a company within the European Economic Area (EEA) that undertakes activities in another EEA state without that state’s direct authorisation. Passporting is an established right for any EEA state, according to the Financial Services and Markets Act 2000 (FSMA 2000).
Payment date definition
A payment date is the date on which a stock dividend is paid.
Penny stocks definition
Penny stocks are not actually worth a penny but they are the shares of smaller companies with a low value. There’s no official definition of a penny stock, but generally the companies have a market value, known as market capitalisation, of less than £100 million and the individual shares are worth less than 50 pence each. In the US, penny stocks used to trade for below one dollar a share, but are now generally defined as those trading for less than $5 a share.
Pension definition
A pension is a long-term savings scheme that involves putting money away, whilst employed, for retirement. Regular amounts put into pension schemes build up over time and then provide an income, and potentially a lump sum, once a person reaches a certain age.
Performance fees definition
Investment and hedge fund managers will often charge performance fees for generating positive returns on investments. The fee is a percentage of any profits or outperformance generated, typically between 10% and 20%.
Personal allowance definition
Personal allowance is the amount of income a person can receive without being taxed.
Physical replication definition
Physical replication refers to the situation in which an exchange traded fund (ETF) tracks its benchmark by holding all or a portion of all the underlying securities that make up that benchmark.
Pink slips definition
The term pink slip is thought to have originated in the US, and is an informal term to refer to a termination notice.
Portfolio definition
A portfolio refers to group of assets that are held by a trader or trading company. Assets in a portfolio can come in many forms, including stocks, bonds, commodities or derivatives.
Portfolio risk definition
Portfolio risk is a chance that the combination of assets or units, within the investments that you own, fail to meet financial objectives. Each investment within a portfolio carries its own risk, with higher potential return typically meaning higher risk.
Position definition
A position is the financial term for a trade that is either currently able to incur a profit or a loss (an open position) or has recently been cancelled (a closed position). Positions are the way in which a trader will hope to make a profit.
Post-market definition
Post-market means after the market. Some financial markets, like foreign exchange markets, never stop trading, but most individual stock markets have defined trading hours. That’s because the stock exchanges are open generally for the working day of the time zone in which they are located. Post-market generally refers to the late hours after the stock market closes in any jurisdiction (see also pre-market definition).
Power of attorney definition
Power of attorney gives another person the ability to act on your behalf. In trading, this means they can take over your trading accounts.
Pre-market definition
Pre-market means before the market. While some financial markets, like foreign exchange markets, never stop trading, most individual stock markets have defined trading hours. That’s because the stock exchanges are open generally for the working day of the time zone in which they are located. Pre-market generally refers to the early hours just before that stock market opens.
Preference shares definition
Preference shares, or preferred stock, are seen as more attractive to investors than common stock.
Premium bonds definition
Premium bonds are lottery bonds issued by the UK government. They were launched by then Prime Minister Harold Macmillan in 1956 and proved popular, predating the National Lottery by decades. They have fallen out of favour in recent years due to the National Lottery and as the UK government has focused instead on persuading consumers to save in tax efficient vehicles like ISAs.
Principal definition
A principal is an amount of money borrowed or the amount still owed. If you were to take a loan of £25,000 from the bank, for example, the principal balance would be £25,000. For every payment you make on the loan, the principal decreases.
Private equity definition
Private equity is money that is invested directly into private companies, rather than into publicly listed companies.
Profit and loss definition
Profit and loss are two terms that are central to trading: the financial returns (or outgoings without returns) from any business enterprise or trade.
Prospectus definition
A legal document disclosed by a company (or ‘entity’) that wants to raise capital from the public. It discloses the position of the company, its outlook for the future, and explains the reason why it’s seeking to raise capital.
Prudential Regulation Authority (PRA) definition
Created by the Financial Services Act in 2012, the Prudential Regulation Authority (PRA) is part of the Bank of England (BoE). It is responsible for the prudential regulation and oversight of roughly 1700 banks, building societies, credit unions, insurance and investment firms.
PTM levy definition
The PTM levy applies to any individual transactions conducted on the London Stock Exchange (LSE) worth over £10,000.
Quantitative easing definition
Quantitative easing (or QE, for short) is an economic monetary policy intended to lower interest rates and increase money supply. It saw an increase in profile and use after the 2008 financial crash and subsequent recession.
Quote definition
In trading, the quote is the price at which an asset was last traded, or the price at which it can currently be bought or sold.
Rally definition
A rally is a period in which the price of an asset, market or index sees sustained upward momentum. Typically, a rally will arrive after a period in which prices have been flat or in a decline.
Rating agency definition
Rating agencies issue credit ratings for borrowers, including individuals, businesses, institutions and local and national governments.
Recognised investment exchanges definition
These are investment exchanges that are recognised by the relevant authority.
Redemption yield definition
Redemption yields are also known as the yield-to-maturity or the book yield.
Registrar definition
In share dealing terms, registrars keep a register of who owns shares on behalf of listed companies.
REIT definition
A REIT, or real estate investment trust, is a listed company (or group of companies) which enables private investors to gain exposure to a portfolio of income-producing properties.
Retail distribution review (RDR) definition
The Retail Distribution Review (RDR) is a Financial Conduct Authority (FCA) initiative that aims to provide greater clarity about different types of financial services available. It also seeks to improve transparency around the costs and fees associated with financial advice.
Return of capital definition
Companies sometimes return a portion of capital, or value, to their capital owners. This means an investor like a shareholder will receive back a portion of their original investment.
Rights issue definition
A rights issue is the term for when a company offers more of its shares to current shareholders, usually to raise extra capital. It differs from other additional shares offerings, where shares are available for any investor willing to buy.
Risk definition
In the context of trading, risk is the potential that your chosen investments may fail to deliver your anticipated outcome. That could mean getting lower returns than expected, or losing your original investment – and in certain forms of trading, it can even mean a loss that exceeds your deposit.
Risk management definition
Once you have identified the potential risks in your portfolio, there are many different methods of lowering risk.
Risk rating definition
This is the way risks of a particular instrument is evaluated and ranked.
Risk reward ratio definition
The risk-to-reward ratio evaluates the level of potential downside to an investment, compared to the potential gains.
Risks definition
In trading, risks are the ways in which an investment can end up losing you money.
Robo-advisor definition
A robo-advisor is a digital form of financial advisory service which relies on algorithms in order to offer advice, meaning there is little human intervention.
ROCE definition
ROCE stands for return on capital employed: a ratio which measures how effectively a company uses capital.
RPI definition
The Retail Price Index (RPI) is a measure of inflation, which in turn is the rate at which prices for goods and services are rising.
S&P definition
S&P Global is a US-based ratings, indices, and market intelligence provider. It is one of the big three providers of ratings for investment instruments, alongside Moody’s Investors Service and Fitch Ratings, while its S&P Dow Jones Indices division produces the S&P 500 and Dow Jones Industrial Average stock indices, among others.
Sample replication definition
Sample replication, or optimised replication, refers to a type of exchange traded fund (ETF) that holds equities or bonds in some of the constituents of the benchmark it tracks. It differs from full replication, when an ETF holds all of the constituent securities of its benchmark.
SEAQ (Stock Exchange Automated Quotation System) definition
Stock Exchange Automated Quotation System (SEAQ) is a computer system that shows the most recent prices of shares in small and mid-cap companies on the London Stock Exchange (LSE).
SEC definition
The SEC stands for the US Securities and Exchange Commission. It is a government agency set up to regulate markets and protect investors in the United States, as well as overseeing any mergers and acquisitions.
Sectors definition
Sectors are divisions within an economy or market, useful for analysing performance or comparing companies with similar outputs and characteristics.
Securities definition
Financial securities are tradeable financial assets, including stocks and bonds. Traditionally, they are divided into debt and equity securities. Debt securities include corporate and sovereign bonds, while equity securities include common and preferred shares. There are also hybrid securities, which share some characteristics of debt and equity securities, including preference shares, convertible bonds and equity warrants.
Securities lending definition
Securities lending is related to short selling, and is usually conducted between brokers rather than individual investors. An investor borrows securities with the view of selling them immediately, and then buying the securities back at a lower price.
SETS definition
SETS stands for the Stock Exchange Electronic Trading Service, the London Stock Exchange’s digital order book.
Settlement definition
Settlement refers to the completion of a transaction or payment. In transactions, the settlement date is when ownership over a security or asset is formally transferred over to the buyer, which also pays for the transaction on the same date.
Shares dealing definition
Share dealing is a form of investing that involves buying company stock, with profit attained either by selling the stock on for a higher price or via dividends.
Shares definition
Shares are the units of the ownership of a company, usually traded on the stock market. They are also known as stocks, or equities.
Shares trading definition
Shares trading is the buying and selling of company stock – or derivative products based on company stock – in the hope of making a profit.
Shariah-compliant investing definition
Shariah-compliant investments must meet all the requirements of Shariah law, as well as other principles that have been set down to govern Islamic finance.
Sharpe ratio definition
The Sharpe ratio allows investors to calculate what returns are on offer for holding a higher-risk asset.
Short definition
In trading, short describes a trade that will incur a profit if the asset being traded falls in price. It is also often referred to as going short, shorting or sometimes selling.
Short ETF definition
A short exchange traded fund (ETF), or inverse ETF, is a type of exchange traded fund which aims to rise in value if its benchmark falls in value.
Short selling definition
Short selling is the act of selling an asset that you do not currently own, in the hope that it will decrease in value and you can close the trade for a profit. It is also known as shorting.
Shortfall risk definition
Shortfall risk is the possibility that you may not reach the investment target that you initially set out to. Previous performance does not guarantee future returns, so you may fall short of your original forecast.
SIPP definition
SIPP stands for self-invested personal pension, a type of pension that grants you increased control over where your capital is invested.
Small cap definition
Small cap stands for small capitalisation and is a term used to group stocks and shares. Sitting below large- and mid-cap stocks, small-cap stocks generally have a valuation, or market capitalisation, of less than $2 billion.
Smart beta definition
A smart beta is an investment strategy used by a certain type of exchange traded fund (ETF) that takes more factors into account when choosing assets for the benchmark than a traditional ETF.
Socially responsible investing definition
Socially responsible investing, or SRI, is when an investment is made into something that is deemed socially responsible.
Specific risk definition
This refers to risk that will only affect a small segment of the market or a small number of assets.
Spread betting definition
Spread betting is a leveraged financial derivative. When spread betting, you are making a bet on the direction in which a market will move. The accuracy of your bet determines the profit or loss when the position is closed.
Spread definition
In finance, the spread is the difference in price between the buy (offer) and sell (bid) prices quoted for an asset.
Stakeholder pension definition
A stakeholder pension is a type of defined benefit pension scheme that works in a similar way to a personal pension plan. They are designed to be accessible by all and the UK government has set strict minimum standards for such schemes, including low charges, charge-free transfers, low minimum contributions and the ability for flexible contributions.
Stamp duty and SDRT (Stamp Duty Reserve Tax) definition
When investors trade in electronic share transactions (paperless) they must pay Stamp Duty Reserve Tax (SDRT). This applies to those types of transactions dealing in: shares in a UK company, shares in a foreign company that has a UK share register, options to buy shares, rights arising from shares you already own, and any interest in shares (such as an interest in the money made from selling them).
Stock analysis definition
Stock analysis is the examination and evaluation of the stock market. It can take the form of analysis of an individual stock, sector or broader areas. Stock analysis is also referred to as market analysis, or equity analysis.
Stock exchange definition
A stock exchange is a medium by which shares are bought and sold.
Stock index definition
A stock index is a group of shares that are used to give an indication of a sector, exchange or economy. Usually, a stock index is made up of a set number of the top shares from a given exchange.
Stock market definition
The stock market, or equity market, is a series of exchanges where shares in public companies are issued, bought and sold. Its role is to give private investors a way to own a stake in a listed company, while providing the companies themselves with capital to reinvest in their business.
Stock market index providers definition
Stock market index providers run indexes that measure the value of a group of stocks. Simply put, a stock index measures the value of a group of stocks. The level of the index is worked out using the prices of the stocks selected to make up that index, typically using a weighted average.
Stock symbol definition
A stock symbol is a unique series of letters or numbers, used to identify a stock traded on a stock exchange. They are also sometimes referred to as stock tickers or ticker symbols.
Stockbroking definition
Stockbroking is a service which gives retail and institutional investors the opportunity to buy and sell equities.
Stop order definition
Stop orders are types of order that instruct your broker to execute a trade when it reaches a particular level: one which is less favourable than the current market price. They can also be known as stop-loss orders.
Synthetic replication definition
Synthetic replication refers to a type of exchange traded fund (ETF) that doesn’t hold any of the underlying securities featured on its benchmark.
Systematic risk definition
Systematic risk is the risk that the entire financial system, rather than a single stock or industry, will be affected by a particular event or series of events.
Takeover definition
In a takeover, one company will buy another company and assume control of it. Publically listed companies will usually make a public takeover bid or offer for the target company, which must be accepted by the target company’s shareholders (its current owners) before it can be completed.
Tangible assets definition
Tangible assets are the assets on a company's books and balane sheet that have a physical form. They comprise the machinery, office equipment and buildings used by a company (fixed assets) and of the materials that are used in producing products (current assets).
Technical analysis definition
Technical analysis is a means of examining and predicting price movements in the financial markets, based on an asset’s chart history. It is one of the two major schools of market analysis, with the other being fundamental analysis.
Ticker definition
A stock ticker is a record of the price of securities listed on a stock exchange, continuously updated throughout a trading session. Stock prices will ‘tick’ up and down throughout the day.
Total cost of ownership definition
Total cost of ownership (TCO) is a measure of the cost of investing in an exchange traded fund (ETF) over a period of time. It is viewed by some ETF providers as a more comprehensive indicator of an ETF’s cost than its total expense ratio (TER).
Total expense ratio definition
In funds, total expense ratio (TER) is the amount you’ll have to pay to hold an investment (like an ETF) for one year. This figure will come out of the fund’s performance rather than being separately invoiced to you.
Tracking difference definition
Tracking difference is a key metric in gauging the performance of exchange traded funds (ETFs), showing how a product has performed compared to its benchmark over a period of time.
Tracking error definition
Tracking error is the difference between the returns on an investment portfolio and the benchmark that the portfolio was supposed to mimic or replicate. It’s therefore a measure of how well or how badly a portfolio is performing over time.
Trading plan definition
A trading plan is a strategy set by the individual trader in order to systemise evaluation of assets, risk management, types of trading, and objective setting. Most trading plans will comprise two parts: long-term trading objectives, and the route to achieving them.
Treasury stock definition
Treasury stock is the portion of a company’s shares that it keeps in its own treasury. The shares do not count towards the total amount of outstanding shares listed, and neither pay dividends nor carry voting rights (because a company cannot pay itself, or own itself).
Trend definition
When a market is making a clear, sustained move upwards or downwards, it is called a trend. Identifying the beginning and end of trends is a key part of market analysis.
Trending shares definition
A trending share is the term for when a company’s stock is undergoing a significant move in comparison to its underlying index. The trend can be either upwards or downwards.
Trustee definition
A trustee is a person or company that oversees property or assets for the benefit of a third party.
UCITS definition
UCITS stands for ‘undertakings for collective investment in transferable securities’, a European directive that provides a regulatory framework for which are managed and domiciled in the EU and intended for sale to retail clients.
UK reporting status definition
When an offshore fund has UK reporting status, the investor will receive a flat capital gains rate on disposal of a holding. Without UK reporting status, this holding is subject to income tax, and therefore subject to rates based on the investor’s individual circumstances.
Unborrowable stock definition
Unborrowable stock is the stock that no one is willing to lend out to short sellers. When shares in a company become unborrowable, the traditional means of short selling them is impossible.
Unit definition
A unit in the financial world is a combination of assets or types of assets packaged together and sold as one. For example, a shareholder buying one unit of company stock may get preferred shares, ordinary shares and even warrants in the unit. And a unit trust offers investors a way of investing in a portfolio of assets like stocks and bonds by buying units of the portfolio.
Unit trust definition
A unit trust manages portfolios of stocks, bonds, and other assets on behalf of investors.
Value investing definition
Value investing means seeking out assets like shares, that are priced below their long-term intrinsic value, and therefore potentially have the best growth potential in terms of price.
Variable costs definition
Variable costs are business expenses that change when production volumes change. They differ from fixed costs, which remain constant if production volume rises or falls.
Venture capital definition
Venture capital is money provided by investors to new ventures, projects or businesses. It can be difficult for brand new businesses, known as startups, to get access to capital markets, and therefore venture capital provides a valuable potential source of funds.
Venture capital trust definition
A venture capital trust (VCT) is a publicly listed entity that’s specific to the UK that enables investors to provide venture capital to new ventures, projects or businesses. VCTs specialise in very early-stage investments. They are given preferential tax treatment in the UK, with investors often offered lower tax rates or relief from taxation rules that normally apply to dividends or capital gains on stock dealing.
VIX definition
VIX is short for the Chicago Board Options Exchange Volatility Index. It is a measure used to track volatility on the S&P 500 index, and is the most well-known volatility index on the markets.
Volatility definition
A market’s volatility is its likelihood of making major, unforeseen short-term price movements at any given time.
Volume definition
In trading, volume is the amount of a particular asset that is being traded over a certain period of time. It is often presented alongside price information, as it offers an extra dimension when examining an asset’s price history.
VWAP definition
VWAP stands for volume weighted average price, a trading benchmark that is often used by passive investors. It reflects the ratio of an asset’s price to its total trade volume.
Warrant definition
A warrant is a type of derivative that gives the holder the right, but not the obligation, to buy or sell an underlying security at a certain price before the warrant expires.
Wealth Management Association (The WMA) definition
The WMA is the representative body for the investment community. It was created out of the London Stock Exchange in 1990, to uphold the interests of stockbroking firms and investment managers which service retail investors. It has since expanded its reach to promote the interests of the wider investment community.
Weighting definition
Weighting uses mathematics to adjust a group of figures to reflect their relative importance by either proportion or value.
Working order definition
A working order is a general term for either a stop or limit order to open. It is used to advise your broker to execute a trade when an asset reaches a specific price.
WTI definition
WTI stands for West Texas Intermediate (occasionally called Texas Light Sweet), an oil benchmark that is central to commodities trading. It is one of the three major oil benchmarks used in trading, the others being Brent crude and Dubai/Oman.
Yield curve definition
A yield curve is a line plot on a chart that shows the interest rates or yields of bonds with equal credit quality but differing maturity dates.
Yield definition
Yield is the income earned from an investment, most often in the form of interest or dividend payments. Yield is one of the ways in which investments can earn a trader money, with the other being the eventual closing of a position for profit.
Yield to maturity definition
The yield to maturity is the total return a bond investor can expect to make, if the bond is held all the way through to the time it matures, expressed as an annual return.