Glossary 2
Capital markets glossary
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.
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Balance of Payments
Accounting record of all monetary transactions between a country and the rest of the world.
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Balance of Trade
Largest component of the balance of payments
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Base rate
Interest rate set by the central bank to lend other banks.
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Bear market
A market distinguished by declining prices.
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Bid price
The price at which a stock, index or commodity can be sold.
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Bid-ask price
The difference between what buyers are willing to pay and what sellers are asking for in terms of price.
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Blue chip stock
Stock of a financially sound company that has demonstrated its ability to pay dividends in both good and bad times.
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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.
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Bull market
A market distinguished by rising prices.
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Capital gains tax
A tax on investment profits.
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Cash price
The price of an asset for immediate delivery.
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Corporate action
Any event initiated by a corporation which impacts its shareholders.
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Derivatives
Financial contracts, such as futures and options, whose value is derived from an underlying asset, rate or index.
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Dividend
That part of a company’s after-tax earnings that is distributed to shareholders.
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Ex-dividend
A share bought without the right to receive the next dividend which is retained by the seller.
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Existing Home Sales
Number and value of old homes sold, measure of consumer confidence and spending power
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Expiration/expiry date
The date that a spread bet expires.
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Fair value
This is the theoretical price at which a futures contract should trade when compared to the cash or spot price.
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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.
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GDP (Gross Domestic Product)
Measure of market activity, value of goods and services produced by an economy.
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Gearing
The relationship between potential profit or loss and the initial outlay.
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Hedging
A strategy to reduce the risk of an open position.
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Housing Starts and Building Permits
Number of new family homes and buildings that were constructed, strength of the economy.
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Illiquid Market
A market in which it is difficult to sell or buy due to lack of interested buyers/sellers.
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Interim dividends
A company’s distribution of profits to shareholders halfway through the financial year.
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IPO Initial Public Offering
The offering of shares making their market debut.
Mid-Price
The price derived by the average of bid and ask rate.
New Home
Sales National data for new home sales, prices, and number of sales.
Open position
Trades that are currently running within a portfolio.
Rights issue
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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.