Glossary of Financial Terms

Execution-Only Stockbrokers.

Stockbrokers who buy and sell shares on your behalf on your instructions but do not give you advice. They provide a cheap, often no-frills service. Some keep you hanging on the phone for ages. So choose one with care.


A person appointed to administer someones estate after their death. It is usual for the person making a will to nominate two executors to carry out this duty.

Exit charge

A charge you pay for selling or transferring an investment or packaged financial products. Many Personal Equity Plan Providers will levy an exit charge if you want to transfer your Pep to someone else.

Financial derivatives

Financial derivatives are effective in reducing risk because they enable financial institutions to hedge, that is, engage in a financial transaction that reduces or eliminates risk. When an institution has bought an asset, it is said to have taken a long position, and this exposes the institution to risk if the returns on the asset are uncertain. Conversely, if it has sold an asset that it has agreed to deliver to another party at a future date, it is said to have taken a short position. This can also expose the institution to risk. Financial derivatives can be used to reduce risk by invoking the following basic principle of hedging: Hedging risk involves engaging in a financial transaction that offsets a long position by taking an additional short position, or offsets a short position by taking an additional long position. If a financial institution has bought a security and has therefore taken a long position, it conducts a hedge by contracting to sell that security (take a short position) at some future date. Alternatively, if it has taken a short position by selling a security that it needs to deliver at a future.

Fixed assets

Physical elements and items used in the operation of the business and will include all plant & machinery, land and buildings (both leasehold and freehold). A guide to the asset backing for the companys liabilities and debt

Fixed investments.

Investments held for long term business or investment purposes. Taken in conjunction with fixed assets, they provide the tangible asset backing for the companys liabilities and debt.


When a company decides to launch on the stockmarket the process is often referred to as a flotation. The company will issue shares to institutions and sometimes to the general public.

Front-end Loading

The practice of levying high charges on you when you buy a financial product. Many personal pension policies, endowment policies and other packaged financial products, levy front end load charges, making it harder for your money to perform well.

FRS3 earn per share

Financial Reporting Standard 3 (FRS3) issued by the Accounting Standards Board. Under UK General Accepted Accounting Practices, and in accordance with FRS3 issued by the Accounting Standards Board, all companies must provide in their Annual Report an indication as to the earnings per share (eps) for the reporting period. This

FTSE 100 index

Monitors the performance of the top 100 publicly quoted companies by market capitalisation (market value) on the UK stock market. It is weighted to take account of the largest and smallest sized companies within the hundred and is updated throughout the day. The initials stand for Financial Times Stock Exchange; completing the range of indices is a joint venture between the Financial Times newspaper and the London Stock Exchange.

FTSE 250

This index works in a similar way. It monitors the performance of 250 medium-sized companies that together comprise this index.

FTSE 350

This index covers the performance of the FTSE 100 and FTSE 250 shares. All three indices are updated continuously throughout the working day.

FTSE All-Share index

Covers about 850 shares on the UK market. It is updated at the start of every working day.

FTSE Index

Three indices comprise the FTSE All Share index - FTSE100, FTSE Mid 250 & FTSE Small Cap. A fourth index, the FTSE Fledgling, covers newly listed and other listed companies not included in the other indices.

FTSE SmallCap

This is an index that covers a range of the small companies traded on the UK stock market.


Fully listed on the main London Stock Market

Fund Manager

A professional manager of investments in a Pension Fund, Insurance Company, Unit Trust etc.

Fundamental Analysis

A method of researching investment potential by concentrating on the value of the company and its actual, and expected, business and financial performance of the company, based on the value of its net assets and on its historic, and forecast, profit record.

Futures contracts

These give you the right to buy or sell instruments such as currencies or commodities at a future. For sophisticated investors only.


The relationship between the size of the borrowers debt and the assets he has bought with the help of the borrowed money. High gearing means high borrowing relative to a persons contribution to the value of the asset. Investment trusts use gearing – they borrow money to invest in shares, hoping to generate a greater profit than the cost of borrowing.

Gilt-edged bonds

British government loans which carry a fixed interest.

Gilt-edged investment funds

A managed fund that only invests in gilt-edged stocks.

Gilt-Edged Securities

UK Government bonds or loan stocks. Debt securities or instruments issued by the Government paying, usually, a fixed rate of interest and regarded, because of the Government backing, as the safest form of capital retention. Hence, low risk but also, potentially, low reward.

Gilt-edged stocks

British government loans which carry a fixed interest.


Interest or dividends for investors, before deduction of income tax.

Gross Domestic Product (GDP)

The amount of goods and services produced by a country in one year.

Growth Companies

Those companies that are expected to have continual growth, year on year, in their earnings per share.

Hang Seng Index

The index of 33 companies shares measuring the performance of the Hong Kong stock market.

Hedge Fund

As in "hedging your bets", Sociologist, author, and financial journalist Alfred W. Jones is credited with the creation of the first hedge fund in 1949. Jones believed that price movements of an individual asset could be seen as having a component due to the overall market and a component due to the performance of the asset itself. In order to neutralise the effect of overall market movement he balanced his portfolio by buying assets whose price he expected to rise and selling short assets he expected to fall. He saw that price movements due to the overall market would be cancelled out because if the overall market rose the loss on shorted assets would be cancelled by the additional gain on assets bought and vice-versa. Because the effect is to 'hedge' that part of the risk due to overall market movements this became known as a hedge fund.

Horizontal Ratio

Analysis Using financial ratios to provide comparison of a companys performance across a series of different financial periods (years).

Hypothecation Agreement

An agreement between a borrower and a lender where by the borrower pledges asset as collateral on a loan without the lender taking possession of the collateral.

Iiquid assets

Assets or securities which can not be sold easily.

Income fund

A unit or investment trust that aims to provide high income.

Independent financial adviser (IFA)

An adviser committed to offering ‘best advice on a wide range of investments and financial products available in the marketplace.


Indication as to the FTSE index of which the company is a constituent.


System by which the value of securities and/or interest payments are linked to inflation, particularly index-linked gilts, annuities or National Savings products.


These are funds which use computers to produce a performance as close as possible to a particular index of stocks. Also known as Tracker funds, they are hugely popular in the US and gaining in popularity here in the UK

Individual Savings Account (ISA)

A new tax free investment and savings vehicle introduced by the Labour government to replace Personal Equity Plans and Tessas. You can put £7000 into the first ISAs, and thereafter £5000 a year. Investments which qualify for inclusion in an ISA are stocks and shares, bonds, cash, insurance policies and collective funds such as investment trusts and unit trusts. If anyone actually understands the "Maxi" ISA's please let me know


A percentage measure of the amount by which the prices of goods and services rise in the economy, over a period of time, usually one year.

Initial Public Offering (or IP0)

The term used in the US to describe the flotation of a new company on the stock market.

Insider Dealing

Dealing in the shares of companies when you know something about them which has not been made public and which you know will affect the price of the shares when it becomes generally known. Illegal.


Usually meaning financial institutions, the pensions and insurance companies in the UK. They handle huge sums of money on behalf of their clients, the policy holders and investors.

Intangible Assets (intangibles)

The company assets that are usually non-monetary in nature and without physical form but which represent a right or expected future benefit. Examples are Goodwill on acquisition (being the value placed on the acquired companys reputation and market presence), Brands, Patents, Intellectual Property.


A regular payment made usually twice yearly to savers who keep their money in deposit accounts with building societies or banks.

Interims (int)

The companys results for, normally, the first six months of its reporting period (usually its financial year). Also the identification of the dividend declared and paid on the results for this period.


Putting money into real financial assets with the hope of increasing the size of the original investment through future growth at the same time as receiving a regular and rising income.

Investment bond

An equity based investment issued by an insurance company.

Investment Club

A group of people who club together to buy shares.(friends/colleagues/acquaintances) who gather together for the purpose of investing in the stock exchange.

Investment Trust

A closed-end investment fund which is a company listed on the Stock Exchange and whose purpose is to invest in other shares, often specialising in specific types of company, geographical area or industrial sector.


Initial Public Offering. Public offering is the first time that a company's stock is made available to the public.

January effect

A Market fluctuation so called because of the tendency for certain markets to rise between the end of the year and the end of the first week in January.

Key features document

A document which financial companies are obliged to provide you with when you buy things such as an endowment or savings policy. It sets out the charges you pay and the effect those charges will have on your investments over time.


In finance, leverage is a general term for any technique to multiply gains and losses. Common ways to attain leverage are borrowing money, buying fixed assets and using derivatives. Important examples are:

•A public corporation may leverage its equity by borrowing money. The more it borrows, the less equity capital it needs, so any profits or losses are shared among a smaller base and are proportionately larger as a result.

•A business entity can leverage its revenue by buying fixed assets. This will increase the proportion of fixed, as opposed to variable, costs, meaning that a change in revenue will result in a larger change in operating income.

•Hedge funds often leverage their assets by using derivatives. A fund might get any gains or losses on $20 million worth of crude oil by posting $1 million of cash as margin


An amount of money owed to other people, a debt.

Limit order

This is an instruction given to a broker that sets conditions on making certain trades. A limit order specifies that the broker is not to buy a certain security, unless it is at or below a certain price. Orders for selling can be done as well, whereby the price must be matched or exceeded before any transaction takes place.


A market for a financial commodity where there are many buyers and sellers so that it is easy to deal. FTSE 100 companies are typically the most liquid in the UK market. Investors who hold cash are said to be liquid, as cash is the easiest commodity to use for buying any other asset.

Liquid assets

Cash applicable to Banks it is the value at the balance sheet date of all assets that are either represented by cash or are transferable into cash at short notice.


The portion of an investment portfolio that is not fully invested, but is represented by cash holdings. Also, the level of continual buy and sell activity making up the market demand for the shares and indicating the ease with which investors can undertake transactions.

Listed Company

Another way of describing a company whose shares are quoted on the stock market.

Long Term Insurance Funds

Applicable to insurance companies only, this is the value of the Long Term Insurance Funds as at the Balance Sheet date, being the capital value of the long term policy holders interests.

Managed fund

Broadly based investment fund run by a professional manager in a pension or insurance company.


A margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of his counterparty (most often his broker or an exchange). This risk can arise if the holder has done any of the following:

Borrowed cash from the counterparty to buy financial instruments,

Sold financial instruments short

Entered into a derivative contract

The collateral can be in the form of cash or securities, and it is deposited in a margin account. On U.S. futures exchanges, "margin" was formally called performance bond.

Market capitalisation

A companys total value, that is, the number of its shares in issue multiplied by the share price at any one time.

Market Maker

A Stock Exchange member firm that is obliged to make a continuous two-way price in the shares it follows. This is a commitment to offer to buy and sell the securities it trades in.


The agreed joining together of two companies, usually in the same industry, to provide a new, combined, entity with control still reflected in the ownership shares of the original companies.

Mid Price

The median (mid point) of the buying and selling spread (bid / offer spread) quoted by the market makers. The price shown in the share price pages and market reports within the financial media, but not the price at which you could necessarily expect to conclude a deal to buy or sell. The price at which you buy will be higher and the price at which you sell will be lower than the mid price in almost all circumstances.

Minority Interest

That part of a subsidiary company that the investing company does not itself hold, or control. If the company has an interest in 87% of the share capital of another company, then that other company is a subsidiary and 87% of its profits and assets will be featured in the consolidated accounts of the share owning company. The 13% not owned directly, will be featured in the consolidated accounts as a Minority Interest.


Stands for Mortgage Interest Relief At Source. Basically, the bank or building society calculates the tax relief you are due on your mortgage and deducts it before working out your monthly repayments.

Mkt cap

Market capitalisation Market capitalisation is the number of shares in issue multiplied by the share price at the time the market capitalisation was calculated.


A form of company structure where the members (usually borrowers, savers or policy holders) own all the assets of the company. It applies to building societies and some insurance companies, such as Scottish Widows and Equitable Life.

Mutual funds

In the UK we call them unit trusts. They are pooled funds, investing in the stock market and other instruments. Hugely popular in the US where the growth of mutual funds has been a factor behind the rise in the US stock market.

Market Value Adjuster (MVA)

The MVA gives the insurer the right to not pay out the full value of the investment in certain circumstances such as a stock market crash.

National Savings

Low-risk savings schemes run by the UK government.

Negative equity

The difference between the initial price paid for a property and its current value if the latter is lower.


After deduction of income tax.

Net worth

The value of your assets after deducting the full extent of all your debts (liabilities).

New Issue

A company coming to the stock market for the first time ever.

Nikkei index

Index for the Japanese stock market.

Nominal value

The numerical value of an item, ignoring the impact of inflation.

Nominee Account

An account used by stock broking firms to hold your shares. More and more people are using nominee accounts since it makes the whole business of buying and selling shares cheaper and easier.

Non-redeemable gilts

Gilts without a maturity date.

Norm earn per share

Under current UK Generally Accepted Accounting Practices the companys earnings per share are reported after including all exceptional and extraordinary credits and charges of a trading and non trading nature. Computed from the Annual Report & Accounts an adjusted, standardised value for earnings per share to provide a comparable basis for intercompany comparison. From an investment point of view this "normalised earnings per share (norm earn per share) includes three important characteristics. It reflects the underlying trading performance by excluding non-trading and exceptional results. It can be used as a measure of performance against expectations. It clarifies the historic record of operating performance.


An unregulated, off exchange, alternative to the official Stock Market targeted at smaller companies, with a potentially higher risk, but consequent prospects of greater reward.

Offer Price

The price the Market Maker will require in order to sell to you the shares you seek to buy (see Spread).

Open Ended Investment Company

A new type of collective fund, similar to a unit trust but with a single price quoted for buying and selling. Many unit trusts have converted to OEICs.

Open market option

A scheme for a person whose pension has matured to purchase his annuity in the open market, not just from the company with which he built up his pension fund.


Another type of derivative contract giving you the right to buy or sell shares or other financial instruments. Again only for sophisticated investors.

Ord cap, reserves

The net assets of the company attributable to ordinary shareholders, being the value of funds raised from share issues together with all profits reinvested in the business, after repayment of dividends.

Ordinary shareholders funds

The money belonging to the ordinary shareholders in a publicly quoted company.

Ordinary Shares

The commonest form of shares. Holders are the risk bearing owners of the company. They receive dividends that vary in amount, being subject to the companys underlying profitability and the directors recommendations. These, in turn, are based on their expectations as to future cash requirements for the companys continued operation and development.

Other ins funds

Applicable to insurance companies only, this is the value of the Insurance Funds reflecting short term policies, being the capital value of holders interests in such policies.

Par Value

The face, or nominal, value attributed to each of the companys shares. Part of the securitys title. This has no relationship to either the value of the company or to the quoted price.

Patient Money

The money left for investment purposes, after making full allowance for housing costs and living and emergency financial requirements.

PEG Factor

The factor used to indicate the relative attraction, and consequent value enhancing potential, from investing in a growth company. It indicates the relationship between the price earnings ratio (PER) and the earnings per share growth rate. A PER of 15, with an earnings growth rate for the company of 30%, gives a PEG factor of 0.5 (15/30).

Penny Share

The term usually applied to companies whose shares have a very low price, normally under 50p per share. Companies whose shares have speculative appeal, represent greater risk and are often issued by former, high riding companies, now deemed to be on harder times.

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