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Natwest Stock Brokers - Banking and finance terms
Category: Economy and Finance > Banking and finance
Date & country: 25/03/2011, UK
Words: 102


AGM
annual general meeting.

AIM
the Alternative Investment Market. This is a 'junior' stock market run by the London Stock Exchange. It tends to have smaller, younger companies than the Full List. It also has less regulation.

Asset allocation
the spread of investments across the different asset classes.

Asset classes
investments such as shares, bonds, property and cash deposits.

Bargain
the term used when a purchase or sale of shares is agreed.

Bear Market
is a market which is falling.

Bid Price
this is the price at which you can sell. Your broker will always quote you a two-way price which includes the offer price (the price you can buy at) and the bid price (the price you can sell at).

Bonds
these can be issued by private companies or governments. They must pay anyone who holds their bonds (the bondholder) the principal (the original amount of the loan) plus interest.

Bounce
to drop to a low price and recover.

Bull Market
a market which is rising.

Buyback
a Corporate Action that will occur when a company decides to repurchase shares in existence by offering to buy back some of their shares from existing shareholders.

Buying
betting on prices you expect to rise.

Cash dividend
a cash payment usually paid out twice a year as an interim and final payment.

Certificates
in days gone by, legal title to a shareholding was denoted by a paper share certificate. They are easy to lose. It is more common these days for brokers to offer a nominee service.

Charting
using information about prices to create a chart showing how they have moved.

Commission
a stockbroker's charge for executing a customer's order.

Commodities
products such as food and metals, whose prices are affected by public demand.

Consideration
this is the total amount of the transaction. The amount required to purchase the shares and pay the commission and stamp duty.

Consolidated tax voucher
this document is sent out annually detailing the payments a client has received, such as dividends. The voucher should be kept for annual tax returns.

Contract Note
when you deal in shares, your broker should send you one of these in the following days to confirm what you traded, how much of it you traded, and how much you paid (if buying) or were paid (if selling).

Controlled Risk Bet
is when you decide the price at which point the trade will be automatically closed to minimise losses. This is also referred to as a GSO.

Corporate Action
a specific event that will occur within a company that affects the number of shares in issue e.g. Capitalisation, Rights Issue, Buybacks, Consolidations, Open Offers , Conversions, Share Splits and Takeovers.

Cum dividend
or cum div means 'with dividend'. If you buy a share that is cum dividend, it means you have entitlement to the next dividend payment. The dividend will already have been declared (but not paid) and so its value will be reflected in the share price.

Daily Rolling Cash Bet
when you hold a position overnight they

Dematerialised Stock and Shares
these shares are held in electronic accounts instead of paper certificate format which makes them easier to buy and sell.

Diversification
spreading capital across different investments to reduce risk.

Dividend
the allocation of profits to shareholders −usually paid in pence per share. Dividends are not guaranteed. They tend to be paid out twice a year into your nominee account. If you hold your share certificates, the dividend is sent to you as a cheque.

Dow (US 30)
the Dow Jones index which compiles daily prices quoted on the New York Stock Exchange.

Drip Dividend
dividend reinvestment plan. The dividend is made in cash, but the cash is automatically pooled with other investors' cash dividends to buy other shares.

Easdaq
a European version of Nasdaq

EPIC
stands for Exchange Price Information Code. Also referred to as a "symbol" or "ticker". This is a three or four letter code, unique to each company. It saves you having to type out the company name in full.

Equity
a share.

Ex-dividend
or xd. If you buy a share that is ex-dividend then you are not entitled to the last dividend it declared. There is normally a gap of a few weeks or even months between the time a company declares and pays its dividends. The cut-off date as to who gets the dividend, should the share change hands, is known as the ex-dividend date. See cum-dividend.

Execution Only
where the stockbroker simply executes the deal for the client −and does not give advice on what shares to buy or sell.

Exponential
increasing or reducing at a faster and faster rate.

Exposure
the full financial amount you could lose when you trade on margin.

Financial Instrument
financial assets such as stocks, bonds shares or currencies.

Financial Services Authority (FSA)
the chief regulator for the UK financial service industry.

Floatation
the process by which a company lists on the market for the first time. Also referred to as an Initial Public Offering (IPO).

Foreign Exchange
the market on which currencies are bought and sold.

Full List
this is the main market of the London Stock Exchange, where you find the likes of BT, Vodafone and Marks & Spencer. Also known as the Official List.

Gapping (slippage)
price gapping is the variation in the price when you closed out a deal and the money you actually receive, due to conditions between the time the markets closed and re-opened.

Gearing (leverage)
using a small amount of money to bet on price movements of a large trade. You can make or lose a lot of money compared with your original bet.

Gilts
bonds issued specifically by the British Government. A conventional gilt will pay a fixed cash payment every 6 months until maturity, at which point a final payment is made and the return of the initial investment.

Go long
if you go long (buy), you spread bet on an instrument such as shares because you think the price will increase.

Go short
if you go short (sell), you spread bet on an instrument such as shares because you think the price will drop.

Guaranteed Stop Loss Orders (GSOs)
orders which stop you losing money through slippage. This is also referred to as a Controlled Risk Bet (CRB).

Hedging
offsetting the risk of an adverse price movement by taking the opposing position. For example, if you own a stock which you expect to fall, you could sell it in a futures contract for a price set now.

Index
an index consists of a

Indices
see index.

Individual Savings Account (ISA)
this is a tax efficient investment wrapper. It lets you shelter investments, including shares, from capital gains tax.

Initial margin
the money which is taken out of your account to fund your trading on margin.

Initial Public Offering
where investors are offered shares in a company before the company is listed on the stock market.

Instrument
something that has financial value such as stocks, bonds shares or currencies.

Investment Club
a group of investors, usually friends or work colleagues, who contribute monthly to a central fund to invest in shares.

ISA
an Individual Savings Account. Allows you to hold investments within a tax shelter.

Leverage
the use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.

LIBOR Rate
the London Interbank Offered Rate and is the rate banks charge each other for short-term loans.

Limit order
where a client specifies the price to execute a purchase or sale of shares. A limit order system automatically inputs orders 24 hours a day, seven days a week. When the specified price is reached, the system will process the order.

Limit Price
when you ask a broker to buy or sell shares you can set a limit price. This will represent a maximum price you want to pay, if you are buying, or the minimum you would like to receive, if you are selling. It's best to check with your broker how they handle limit prices. For example, some will cancel your trade after a certain time if they can't do better than your limit price.

Liquid Market
a market where it is easy to buy and sell.

Liquidity
the ability to buy and sell easily.

Live Price
the up-to-date price.

Long
if you go long, you bet on an instrument such as shares because you think the price will increase.

LSE
short name for the London Stock Exchange

Margin
the amount of money you need to fund a position. Usually you only need between 5% and 20% of the nominal value of an instrument.

Margin Requirement
the amount of money you must have access to when you are trading on margin.

Margin Trading
essentially, this is investing financed by short-term borrowings.

Market Maker
the firm or securities house who makes a market in a share. They quote prices for stockbrokers to buy or sell to.

Mid Price
the mid price is the price you see quoted in the financial pages and in your portfolio. It is the halfway point between the bid and offer prices.

Nasdaq
A US market dominated by large technology stocks such as Microsoft, Cisco Systems and Yahoo!. It stands for National Association of Security Dealers Automated Quotations.

Nominal Value
the face value of a share (the price when it was issued).

Nominee Service
with the Share Dealing Account, you can hold your shares electronically in our nominee service. This reduces the amount of paper needed. The shares are held on the registrar in the name of the nominee company rather than the shareholder.

Normal Market Size
this is the maximum number of shares in which you can trade in one transaction, and be guaranteed to get a price between the indicated bid and offer prices.

Notional Trading Requirement (NTR)
a fixed number which dictates how much money you need access to before you can use a spread bet.

OFEX
a market for small UK companies run by a broker, and not by the London Stock Exchange. It can be very difficult to trade in shares on the OFEX market.

Offer Price
this is the price at which you can buy. Your broker will always quote you a two-way price which includes the offer price (the price you can buy at) and the bid price (the price you can sell at).

One Cancels the Other Orders (OCOs)
with normal stop or limit orders, cancelling one doesn

Paper Loss
when your investment value has fallen but you have not cashed in your investment at that moment in time.

Point
a single movement up or down on a chosen instrument.

Pooled Investment
sometimes referred to as collective investments and is where several people invest (varying amounts of money) into a fund.

Pounds per Point
the amount of money earned or lost by your bet for each point of movement in the price.

Price Movements
changes in prices.

Quarterly Bet
this spread bet runs for three months and rolls over until you close it out. Financing is already built into the price thus no further daily charges on this bet are made. (See also forward rate bet and Daily Rolling Cash

Rebound
this occurs when the price of an instrument starts to recover.

Rights Issue
Corporate Action that is a means of raising finance through issuing extra shares. Existing shareholders are offered the right to purchase newly issued shares before anyone else generally at a price lower than the current market price.

Risk Reward Ratio
how much you are willing to risk for the chance of a good profit. It may be worth risking 50 points to make 100 points, but it may not be worth risking 50 points to make 30 points.

SAYE
a scheme run by an employer that lets people buy shares in the company they work for

Selling
betting on prices you expect to drop.

Settlement
the term used to describe the transfer of shares for payment between a buyer and seller.

Share
are also referred to as stocks or equities. They represent ownership in a company.

Share Dealing Account
this is an account for shares. You use it to hold shares electronically and to buy and sell shares either online or over the phone.

Short
if you go short, you spread bet on an instrument such as shares because you think the price will drop.

Spread
the difference between the buying price and the selling price.

Spread Trading / Spread Betting
Spread Betting is a way of trading on a financial instrument such as a Share or a Commodity without physically owning it. This involves you betting on the price movement of the share, index, commodity or bond.

Stop Order
an order to buy at no more than a set price or sell no lower than a set price to protect you from further loss.

Stop-Loss
the point the trade will be closed to minimise losses.

T+
the number of days before a trade is settled. T+5 indicates settlement will take place five business days after the transaction date.

Trading on Margin
applies to Spread Betting on shares, indices and Foreign Exchange. You need to have access to a smaller amount of money than the notional trading requirement (NTR) you need for other spread bet products.

Transfer Form
if you sell a share for which you have the share certificates, then the broker will send you this form, which you sign to authorise the transaction.