Accretion The gradual increase in value of fixed income securities when moving toward par value at maturity.
Accrued InterestThe accumulated interest on a bond since its last coupon payment date.
Active ManagementAn investment strategy that seeks to outperform the returns of the markets. Active managers use market research to forecast, and select securities.
Algorithmic TradingThe use of computer programs to make trading decisions.
AlphaIs the excess return over the benchmark.
AnnualisationConversion of a short term rate into a yearly rate.
ArbitrageIs the simultaneous buy and sell of the same or equivalent securities traded on different markets, in order to profit from temporarily mispriced securities against each other.
Arithmetic AverageIs equal to the sum of all values divided by the number of values, also known as the mean.
Asked PriceThe price at which a seller is willing to sell a security (offering price).
Asset AllocationChoosing among broad asset classes such as stocks versus bonds.
Average CouponThe average interest rate (coupon rate) of all bonds in a portfolio.
Back-End LoadA fee charged by fund managers to the investors who sell their securities before holding them for a specified period of time.
Basis PointUsed to describe interest rate, or fees; a basis point is one hundredth of one percent (0.01 percent).
Bearish When someone believes the market will go down (bear market).
Benchmark IndexAn index that is used as a reference to measure a fund manager's performance.
Bid PriceThe price of which a buyer is willing to purchase a security.
Bid/Offer SpreadThe difference between the buying and selling price, sometimes referred to as the mark-up.
Bond YieldA return shown by the bond. The rate of return an investor would receive if the bond were held until the maturity date.
Book ValueAn accounting measure describing the net worth of common equity according to a company's balance sheet.
Bullishwhen someone believes that a market will go up (bull market).
Call OptionA call option gives the buyer the right and not the obligation to buy a certain security at a specified price on a specified future date.
Callable BondA bond that the issuer may repurchase at a given price in some specified period in the future.
CarryThe interest cost when financing a position in a security.
Cash SettlementProcedure for settling a futures contract in cash rather than by delivering the underlying asset.
ChurningExcessive buying and selling in a client's account to generate commission for the broker.
Collateralized Debt Obligation (CDO)A way of packaging credit risk. Several classes of securities are created from a portfolio of bonds and there are rules for determining how defaults are allocated to classes.
Collateralized Mortgage Obligation (CMO)A mortgage-backed security where investors are divided into classes and there are rules for determining how principal repayments are channeled to the classes.
Common StockA security, issued as ownership shares in a public company. Shareholders have voting rights, and may receive dividends based on their proportionate ownership.
Convertible BondA corporate bond that can be converted into a specified number of shares of the company at certain times during its life.
Corporate BondLong-term debt issued by private corporations typically paying semiannual coupons and returning the face value of the bond at maturity.
CorrelationA statistical analysis that provides the co-movement measure of the strength of any relationship between variables. It is scaled to a value between -1 (perfect negative correlation) and +1 (perfect positive correlation).
CounterpartyThe opposite side in a financial transaction.
CouponInterest payment made on a bond.
Credit Default SwapAn instrument that gives the holder the right to sell a bond for its face value in the event of a default by the issuer.
Credit DerivativeA derivative whose payoff depends on the creditworthiness of one or more entities.
Credit RatingA measure of the creditworthiness of a bond issue.
Credit RiskThe risk of a default the by bond issuer.
Day TradeA trade that is entered into and closed out on the same day.
Defined benefitA pension plans in which retirement benefits are set according to a fixed formula.
Defined contributionA pension plan in which the employer is committed to making contributions according to a fixed formula.
DerivativesAn instrument whose price depends on, or is derived from, the price of its underlying asset. All derivative instruments are basically portfolios of forward or option contracts.
Discount BondA bond without a coupon trading at a discount to par value such as a zero-coupon bond.
Discount BrokerA broker that charges low commission and no research costs to clients.
Discretionary AccountWhen an investor gives a financial professional to buy and sell securities at his or her discretion without taking the approval from the client first.
DividendA cash payment made to the owner of a stock.
Dividend YieldThe dividend as a percentage of the stock price.
Dollar-Cost AveragingAn investor setting an amount to invest such as monthly regardless of the price at the time, in the long-term, this strategy could enable you to buy more securities at lower prices than higher prices.
Due DiligenceThe work performed by a financial professional in order to investigate and understand certain investments thoroughly before recommending it to his client.
DurationA measure of the average life of a bond. It is also an approximation to the ratio of the proportional change in the bond price to the absolute change in its yield.
Earnings Per ShareA company's earnings divided by the number of its outstanding number of common shares.
Efficient Market HypothesisA hypothesis that asset prices reflect all relevant information.
Electronic TradingA system of trading where a computer is used to match buyers and sellers.
Embedded OptionAn option that is an inseparable part of securities such as convertible bond or capital protected instruments.
Empirical ResearchResearch based on historical market data.
Equity SwapA swap where the return on an equity portfolio is exchanged for either a fixed or a floating rate of interest.
Ex-dividend DateWhen a dividend is declared, an ex-dividend date is specified. Investors who own shares of the stock up to the ex-dividend date receive the dividend.
Exchange Traded Fund (ETF)Are also known as tracker funds. They track major indices and are traded on major exchanges worldwide. They are passively managed; hence have lower cost management fees. They are available on broad, and sector indices.
Executive Stock OptionA stock option issued by a company on its own stock and given to its executives as part of their remuneration.
Expiration DateThe end of life of a contract.
ExposureThe maximum loss from default by the counterparty of the contract.
Extendable BondA bond whose life can be extended at the option of the holder.
Financial IntermediaryA financial institution, or financial professional that facilitates financial activities between different parties investors.
Fixed-Income InvestmentInvestment in an interest rate bearing instrument, such as bond, gilt, certificates of deposit, and any other debt instrument that pays a fixed amount of interest.
Forward ContractA customized contract that obligates the holder to buy or sell an asset for a specified delivery price at a specified future time.
Forward PriceThe delivery price in a forward contract that causes the contract to be worth zero.
Front-End LoadThe sales commission charged to an investor when purchasing a security.
Fundamental analysisResearch of the a company stock value that focuses on earnings and dividends prospects, expectations for future interest rates, and risk evaluation in order to predict its future price.
Futures ContractA standardized contract traded on a futures exchange, which obligates the parties to a particular transaction at specified future date. The contract is marked-to-market daily.
Hedge RatioThe ratio of the size of a position holding to the size of the position being hedged.
HedgingA trade designed to counter balance the user's holding position in order to mitigate risk.
Historic Volatility Volatility estimated from historical prices of the underlying security or market index.
Implied VolatilityVolatility implied from an option price using option valuation model.
Index FundsIndex funds are designed to track the different classes of stocks large, medium, and small-capitalization stocks, as well as fixed-income of the entire yield curve. They are issued, managed, and traded buy asset managers.
Index OptionAn option contract on a stock index or other index.
Index ProvidersCompanies that construct and maintain stock and bond indexes. The main providers are Standard & Poor's, Dow Jones, Morgan Stanley, FTSE Russell, and Wilshire Associates.
Initial MarginThe cash required from an investor at the time of a security transaction.
Initial Public Offering (IPO)A company's first public offering of shares in the stock market.
Institutional InvestorsAsset managers, banks, pension funds and other financial institutions that buy and sell securities, which amount to over two thirds of their daily traded volume.
Investment AdvisorA person or organization that makes the day-to-day decisions regarding a portfolio's investments. Also called a portfolio manager.
Investment Grade BondA bond whose credit quality is considered to be among the highest by independent bond-rating agencies, such as Moody, and Standard & Poor.
Junk BondA high yield, high risk bond rated BB or lower by Standard & Poor's, or Ba rating or lower by Moody's; such low rating indicates financial weakness of the company issuing such bond.
Large Capitalization (Large-Cap)A company whose stock market value is generally more than $10 billion, although the range varies according to the index provider.
LeverageIs investing with borrowed money looking to multiply profits, but it may generate multiple losses. A leveraged underlying market index, or an investment with 3-to-1 ratio will rise or drop 3 times as much as the underlying security.
Limit OrderAn order given to buy or sell a security at a specified price.
LiquidityThe degree of marketability of a security, particularly, trading a security easily around its fair price, and the ease at which it's proceeds can be converted into cash.
Maintenance MarginWhen the balance of an investor margin account falls below the required maintenance margin level, then, the financial institution issues a margin call requiring the account to be topped up with fresh cash or liquid securities.
Management FeeThe amount an index fund, or an investor pays to its investment adviser or investment manager for the work of overseeing the holdings. Also called an advisory fee.
Marked-to-MarketThe practice of revaluing an instrument to reflect the current values of the relevant market.
Market MakerA designated firm, or an individual by the exchange where a security is listed to make market in that security and quote bid/ask (buy and sell) prices providing liquidity. When a broker receives an order, then the broker communicates the order to the appropriate market maker to execute the order. Market Makers trade for their own accounts.
Market OrderAn order to buy or sell a security at the best available price.
Middle Capitalization (Mid-Cap)A company whose stock market value is between $2 billion and $10 billion, although the range varies according to the index provider.
Odd LotA trade of less than one hundred shares.
Over-The-Counter (OTC)An off-the-exchange venue where securities are traded via a computerized network.
Portfolio rebalancingRealignment of the proportions of the underlying assets in a portfolio as needed.
Preferred StockA class of share that pays a specified dividend and does not have the same appreciation as the common stock, but will be ahead of the common stock in line in the event of bankruptcy of the company.
Price-Earning Ratio (P/E)It is the share price divided by the latest earning per share. It is important to show how much investors are willing to pay for one dollar or GBP of earning.
Prospectus (Indenture)The document that describes securities offering of shares or, index funds.
ProxyA document authorization by shareholders to vote on management, or company matters.
Random walkA description of a concept that stock price changes are random and unpredictable.
Return On Equity (ROE)Is dividing the total value of shareholders' equity, except the preferred shares, by the company's net income after tax.
Secondary marketStock exchange, OTC market, and other market places where the securities are traded.
Short SellingA trade that entails borrowing the underlying security and selling it in the hope to buy it later at a cheaper price and return it to the lender. It is usually a risky strategy.
Small Capitalization (Small-Cap)A company whose stock market value is less than $2 billion.
Standard DeviationWidely used to measure risk, which is the square root of the mean of the squared deviations of a securities value compared to the average.
Stop-Loss-OrderAn order instructing the broker to sell a security if the price drops to or below a certain level.
Tracking errorThe difference between the return on a portfolio and that of a benchmark index of which the portfolio is designed to track.
TurnoverThe ratio of the trading activity of a portfolio to the total assets of the portfolio.
WarrantA long dated option issued by the company that is exercisable into a specified number of shares at a specified price, which results in a dilution of the value of the share.
