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
Accumulation fund 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 managers 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.
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.
American depositary receipt definition
Annual report definition
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 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.
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.
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.
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
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%.
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
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
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
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 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
Brent crude definition
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.
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
Capital expenditure definition
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 loss definition
Capital risk definition
Cash drag definition
Cash flow 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 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 trackers definition
Closing price 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
Compound interest definition
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
Counterparty risk 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.
Creation units definition
Credit rating definition
Credit risk 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.
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
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
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, 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.
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
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 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.
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 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.
Emerging markets definition
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 options definition
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.
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.
ETF provider 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).
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.
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-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
Fair value definition
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.
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 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
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.
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
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
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
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.
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
Growth fund definition
Growth investing definition
Growth stock definition
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 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 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 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
Inheritance tax definition
Insider dealing 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 in bonds definition
Interest rate swap definition
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
Investment grade 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.
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.
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
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
Limit up / limit down 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.
Market capitalisation definition
Market data definition
Market order definition
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.
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 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.
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.
Multiplier effect definition
Mutual fund 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
Net income definition
Nil-rate band 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.
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.
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.
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.
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.
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 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
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.
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
Passive investment definition
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 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
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.
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
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
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.
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 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
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
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.
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
Profit and loss 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
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.
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
Recognised investment exchanges definition
Redemption yield definition
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
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.
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
Risk rating definition
Risk reward ratio 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
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.
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.
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
Shares trading definition
Shariah-compliant investing definition
Sharpe ratio definition
Short ETF definition
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.
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
Specific risk definition
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.
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
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
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
Systematic risk 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.
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 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).
Trending shares 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.
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
Value investing definition
Variable costs definition
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 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.
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.
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.
Working order 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
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.