Capital markets glossary

A ¦ B ¦ C ¦ D ¦ E ¦ F ¦ G ¦ H ¦ I ¦ M ¦ N ¦ O ¦ R ¦ S ¦ V ¦

A

Arbitrage

The process where a gap between two market makers prices is exploited by buying from one while simultaneously selling to the other to lock in a profit.

B

Balance of Payments

Accounting record of all monetary transactions between a country and the rest of the world.

Balance of Trade

Largest component of the balance of payments

Base rate

Interest rate set by the central bank to lend other banks.

Bear market

A market distinguished by declining prices.

Bid price

The price at which a stock, index or commodity can be sold.

Bid-ask price

The difference between what buyers are willing to pay and what sellers are asking for in terms of price.

Blue chip stock

Stock of a financially sound company that has demonstrated its ability to pay dividends in both good and bad times.

Bond

A certificate of debt issued by a government or corporation that guarantees payment of the original investment plus interest by a specified future date.

Bull market

A market distinguished by rising prices.

C

Capital gains tax

A tax on investment profits.

Cash price

The price of an asset for immediate delivery.

Corporate action

Any event initiated by a corporation which impacts its shareholders.

D

Derivatives

Financial contracts, such as futures and options, whose value is derived from an underlying asset, rate or index.

Dividend

That part of a company’s after-tax earnings that is distributed to shareholders.

E

Ex-dividend

A share bought without the right to receive the next dividend which is retained by the seller.

Existing Home Sales

Number and value of old homes sold, measure of consumer confidence and spending power

Expiration / expiry date

The date that a spread bet expires.

F

Fair value

This is the theoretical price at which a futures contract should trade when compared to the cash or spot price.

Futures

A financial contract obligating the buyer/seller to purchase/sell an asset such as a physical commodity or a financial instrument, at a predetermined future date and price.

G

GDP (Gross Domestic Product)

Measure of market activity, value of goods and services produced by an economy.

Gearing

The relationship between potential profit or loss and the initial outlay.

H

Hedging

A strategy to reduce the risk of an open position.

Housing Starts and Building Permits

Number of new family homes and buildings that were constructed, strength of the economy.

I

Illiquid Market

A market in which it is difficult to sell or buy due to lack of interested buyers/sellers.

Interim dividends

A company’s distribution of profits to shareholders halfway through the financial year.

IPO Initial Public Offering

The offering of shares making their market debut.

M

Mid-Price

The price derived by the average of bid and ask rate.

N

New Home

Sales National data for new home sales, prices, and number of sales.

O

Open position

Trades that are currently running within a portfolio.

R

Rights issue

A privilege allowing existing shareholders to buy shares shortly before they are offered to the public at a specified and usually discounted price and usually in proportion to the number of shares already owned.
S

Scrip dividend

A scrip dividend is a scrip or bonus issue of shares made at no charge to shareholders in proportion to their holdings in lieu of a cash dividend.

Settlement price

The last traded price for a financial contract on any trading day.

Shares

Represent ownership of part of a company. They are also known as equities.

Shorting

Refers to selling an asset that you do not own with the aim of buying it back cheaper at a later date.

Spread

The difference between our Buy and Sell price.
V

Volatility

A statistical measure of a market’s price movements over time.
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