Capital markets glossary

• 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.

• 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.

• 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.

• 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.

• 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.

• 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.

• 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.

• 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.

• 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.