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This article contains terms often used in investing. It is alphabetical, but in 2 levels rather than 1 level. For example Sovereign Bond is at 2nd level under Bond, not at 1st level. So just search the page for the term you want to find (Control-F). Bold means the word is listed in this dictionary.

This page only lists investing related terms. It does not list economy or business terms (unless they are related to investing). It does not list finance or accounting terms (unless they are related to investing). It does not list banking or insurance terms (unless they are related to investing).

Accrued Interest: a portion of the next coupon, up to today. For example, if the next coupon is $150,000 on 1^st Nov 2015, the last coupon was 1^st May 2015, and today is 1^st July 2015, then the accrued interest is 61/184 x $150,000 = $49,728.26.
Average Life: is the average number of years for which each dollar of the bond principal remains outstanding. It is the total of (number of years from today to each payment x percentage of principal being paid on each payment). Also known as Weighted Average Life.
Asset Allocation: dividing a portfolio into several asset classes, e.g. shares, bonds, property, commodity and cash, in order to maximise the return and minimize the risk. Then divide shares further into large cap, small cap, US, Europe, Asia, value, growth, income; and divide the bonds further into government, IG corporate, HY corporate, short duration, long duration, emerging market, developed market, etc.
Asset Class: a group of securities with similar characteristics. The top 5 asset classes are: equity, fixed income, cash equivalent, commodity and property. See also: Instrument.
Asset Backed Security (ABS): a financial instrument with income payment coming from a pool of underlying assets such as loans, mortgages, leases, credit cards, company receivables and royalties. The repayment of the loans is used to pay the bond holder as interest/coupon.
1. Mortgage Backed Security (MBS): a bond backed (collateralised) by a pool of mortgages. The monthly mortgage payments from the homeowners are passed through to the bond holders, so the bond holders receive both the principal and the interest every month.
2. Collateralised Debt Obligation (CDO): a derivative instrument backed (collateralised) by a combination of (loans, bonds and other debt instruments). The monthly loan payments from the debtor and the coupon payments from the bonds are paid to the CDO holders. The combination of (loans, bonds and other debt instruments) are grouped into tranches e.g. senior tranche, junior tranche and each tranche is sold as a separate CDO. A CDO with senior tranche contains loans and bonds with high credit rating, and is paid first, but has low interest rate. A CDO with junior tranche contains loans and bonds with low credit rating, and is paid last, but has high interest rate.
3. An ABS which is not an MBS or a CDO for example backed by credit cards or company receivables are also called ABS. So there are 2 meanings of ABS.
Benchmark: an index, a combination of indexes, or a cash instrument, against which the performance of a fund is measured against. Examples of companies that create indexes are: MSCI, Barclays, S&P and FTSE.
Bond: a financial instrument issued a company or a government as a way to borrow money.
1. Corporate Bond: a bond issued by a limited company.
2. Sovereign Bond: a bond issued by a national government. Also known as Government Bond.
3. Municipal Bond: a bond issued by a regional government.
4. Supranational Bond: a bond issued by an organisation formed by several countries’ government, such as European Union, World Bank, European Bank for Reconstruction and Development, European Investment Bank, Asian Development Bank, and International Monetary Fund.
5. Index Linked Bond: a bond which the coupon payment and the principal payment are adjusted in line with the Retail Price Index movement.
6. Permanent Interest Bearing Shares (PIBS): fixed income securities issued by building societies. It is like a preference share but for building society instead of a limited company. PIBS has no redemption date.
7. Perpetual Bond: a bond without a maturity date. It is more like equity than a bond, the opposite of Preference Share
Black Monday: Monday 19^th October 1987 when the stock markets crashed.
Cash Equivalents: cash in bank, treasury bills, short term gilts, certificate of deposit, commercial papers, and money market instruments.
Charges and Fees: amount of money that a fund manager, a broker or a platform provider charges an investor for investing in a fund or a share. For a fund they are:
1. Account Administration Charges: the various charges we pay to the platform provider for things we are doing with our account, e.g. opening an account, closing an account, withdrawing money from our account, putting money into our account, collecting dividend or interest payments, and transferring our account to another provider.
2. Annual Management Charge: the amount we pay to the platform provider once a year (or once a month) for each account we have, for having an account with them. The amount usually depends on how much funds we invest in that account.
3. Dealing Charge: the amount we pay to the platform provider every time we buy or sell a fund.
4. Initial Charge: the amount we pay to the fund manager on the day we invest in the fund. It is a % of the amount invested. Sometimes the initial charge is implemented as a Spread, which is the difference between the purchase price and sell price.
5. Ongoing Charges Figure (OCF): total of all charges we pay for a year to a fund manager when we invest in their fund. This includes the cost of running the fund, (management cost, accounting, valuation), custodian fees, trustee/depositary fees, regulator fees, registrar fees, legal adviser’s fees. UCITS funds must quote an OCF.
6. Performance Fee: the amount we pay to the fund manager when they perform better than the benchmark.
7. Total Expense Ratio (TER): like OCF, but including the performance fees paid over the past year. Non UCITS funds quote TER instead of OCF.
8. For a share the charges are:
9. Dealing Charge: the amount that the broker takes every time we buy or sell shares.
10. Stamp Duty: the 5% government tax on purchases of UK shares (0.2% for French shares and 0.12% for Italian shares)
Collateral:
1. In banking: an asset which is provided as a security, when a company borrows money from a bank. For example: a property. If the company cannot repay the debt, the bank takes possession of the asset, and sells the asset to pay the outstanding amount.
2. In swap: cash or government bond provided to a counterparty, to reduce credit exposure in a swap. In a swap trade, one party has negative MtM (mark to market), whilst the other party has a positive MtM. The latter needs to provide collateral to the former, to reduce the credit exposure.
Convexity: a graph between the bond yield and the bond price.
Corporate Action: an event in a public company that affect shares or bonds of the company.
1. Bonus Issue: the company creates (issues) new shares and gives them to the shareholders for free. The share price will be reduced accordingly, so that the value of holding is does not change.
2. Bonus Rights: the company gives rights to existing shareholders. Rights provide shareholders the privilege to buy shares at a discounted price.
3. Consolidation: the company replaces the shares with less number of shares which have higher values. For example: every 2 shares are replaced with 1 new share. If we have 800 shares with market price of 60p, the company will replace our shares with 400 new shares and the market price will be 120p (can be more or less than this depending on the market). The opposite of consolidation is stock split (subdivision).
4. Conversion: the company offers the holders of Convertible Bonds to convert their bonds to shares, with N to M ratio. For example: 5 to 2, i.e. 5 bonds become 2 shares. The shares are new issues so it lowers the share price.
5. Delisting: the company informs all shareholders that it will no longer be listed on the stock exchange. This Corporate Action is probably the worse one. The shareholders will have difficult time selling their shares because nobody wants to buy them.
6. Demerger: the company is split into 2 companies. Company A is split into A and B. And then A is renamed into C. We had 1000 shares of A, price = $8. We receive 200 shares of B, price = $3. We still hold 1000 shares of C, but the price is now lower, say $7.50. Also known as Spin-off.
7. Dividend: the company pays cash to distribute the profit to the shareholders. The correct term is Cash Dividend, because there is another one called Stock Dividend where the shareholder receives shares instead of cash. The shares can be another company’s shares.
8. Liquidation: the company went bankrupt due to debt and liabilities. A receiver will be selling the company’s asset to pay for the debt. The liquidation process can take a few years. Also known as Bankruptcy.
9. Name Change: the company changes name. There is no impact to the number of shares or the price of the shares.
10. Open Offer: the company invites existing shareholders to buy new shares at a fixed price, usually lower than the market price. The quantity offered is proportional to the number of shares we have. For example 1 every 10. So if we have 1000 shares we are entitled to buy 100 new shares.
11. Redemption: the company (the issuer) pays the bonds we hold (nominal + accrued interest) at the call date. Redemption is more widely known as Call.
12. Return of Capital: the company pays an amount in cash to the shareholders, proportional to the value of their shares. It is similar to dividend payment. Also known as Special Dividend. Return of Capital will lower the share price, proportionally.
13. Rights Issue: the company offers existing shareholders the rights to buy new shares at a discounted price. The offer is proportional to the amount of shares we hold. Rights can be sold and bought in the market.
14. Scheme of Arrangement: a company trying to buy all the shares in a target company. The buyer and the seller agreed on a price in court. The agreement is called the scheme of arrangement. If 75% of the shareholder in the target company agrees, then the scheme goes ahead.
15. Stock Split (Subdivision): 1 share is divided into several shares with lower value. For example: 1 share is divided into 3 shares. The value decreases to 1/3 of the original value.
16. Takeover: a company trying to buy all the shares in a target company by making an offer to existing shareholders to buy the shares at a certain price (or combination of cash and share). The shareholders can accept the offer before a certain date. Once the bidding company holds 50% of the shares, it has control of the target company. The existing shareholders will then receive the proceeds in the form of cash and shares. Also known as Merger.
17. Tender Offer: the company offers to buy back some of the shares we hold at a fixed price. Also known as Repurchase Offer.
18. Warrants Exercise: on certain dates warrant holders can convert their warrant into ordinary shares at certain price.
Coupon: the “interest” of a bond
Country of risk: the most dominant country affecting the value of a position. Usually it is a) the country of domicile of the issuer, b) the main securities exchange where the issuer is listed, or c) the country where the issuer’s main revenue is from.
Crossing: a broker matches the buy and sell orders on the same security from different clients and offset them off. If a match is not found internally, crossing can also be done externally using publicly available networks such as POSIT and Instinet.
Custodian: a bank which holds for safe keeping the shares, bonds and other securities that a fund manager holds in a fund. The custodian also settles the trades, collects the dividends and coupons, administer corporate actions, maintain bank accounts, and perform FX
Depositary/Trustee: a company that holds the fund’s underlying asset in trust and make sure that the fund manager keeps the investment objectives. Difference between a depositary and a custodian: the latter only keeps but does not own; while the former keeps and owns the asset. See also: registrar, custodian.
Derivative instrument: a financial instrument which value is determined from an underlying instrument. Included in derivatives are: options, futures, swaps and forwards.
1. Underlying instrument: a financial instrument referred to by a derivative instrument. An underlying can be a bond, a stock, an index, a rate.
2. Exchange-traded derivative (ETD): a derivative listed on a securities exchange.
3. Over-the-counter (OTC) derivative: a derivative contract created directly between two parties, outside the securities exchange.
Discretionary fund manager: a fund manager that builds a custom portfolio for a client.
Distribution fund: a fund that generates income, usually using a mix of 60% bonds and 40% equity income.
Duration: the weighted average maturity of the future cash flows. It reflects the sensitivity of the bond’s price to interest rate changes.
1. Modified Duration: the change in the bond’s price if the interest rate changes by 1%.
2. Effective Duration: like Modified Duration but taking into account that the interest rate change will affect the expected cash flows. It is used for bonds with embedded options, such as call and put.
3. Spread Duration: the change in the bond’s price if the spread move by 1%.
Embedded Options: the right for the issuer or the holder to change the agreement in the bond, such as to call, to put, to convert it into equity, to change the cumulative payout, and to change the voting rights.
1. Callable Bond: a bond which the issuer can buy the bond back (aka “to call the bond”)
2. Puttable Bond: a bond which the holder can sell the bond to the issuer (aka “to put the bond”)
3. Convertible Bond: a bond which the issuer can convert it into the shares in the company.
Emerging vs Developed Markets: a way of classifying country of risk according the size and liquidity of their stock markets and bond markets.
1. Developed Markets: countries with high per capita income, well-developed stock markets, FX markets, derivative markets, open to foreign ownership, good brokerage services. They are (according to MSCI): Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, UK, US.
2. Emerging Markets: countries where the equity and bond markets are mature enough and the economy is market oriented and developing quickly. They are (according to MSCI): Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Russia, Qatar, South Africa, Taiwan, Thailand, Turkey, UAE.
3. Frontier Markets: countries with small securities exchange, but investible. They are (according to MSCI): Argentina, Bahrain, Bangladesh, Bulgaria, Croatia, Estonia, Jordan, Kazakhstan, Kenya, Kuwait, Lebanon, Lithuania, Mauritius, Morocco, Nigeria, Oman, Pakistan, Romania, Serbia, Slovenia, Sri Lanka, Tunisia, Vietnam.
ESG (Environmental, Social and Governance): three factors affecting sustainability of an investment, because they affect the potential future performance of the company (issuer).
ETF (Exchange Traded Fund): a security in a stock exchange which tracks an index. The price changes fluidly so it is more like a share than a fund. The index can consist of equity, bonds, or commodity.
Equity: a security which is a share of ownership in a company.
1. Cyclical Stock: shares which goes up and down in sync with the economy growth and recession. Industry sectors for cyclical stocks are: financials (banks and insurance), mining, construction, retail, transport, and manufacturing. See also: Sector.
2. Defensive Stock: shares which is not affected by the economy growth and recession. Industry sectors for defensive stocks are: utilities, consumer staples, tobacco, food, and healthcare.
Exposure: the amount of risk in the market. For a plain debt or equity instrument say a bond or stock, the exposure is the same as the market value. But for a derivative, say an option, the value of the option itself (the market value if we sell it today) is small, while the exposure (the amount that we are “risking” or “betting” against) is large.
Factsheet: a monthly two-pager document containing basic fund info such as fund name, fund manager, fund objective, NAV, fund size, lunch date, base currency, benchmark, performance, risk, top 10 holdings, asset allocation.
Fiduciary: a person or a company who has control over the fund’s assets or the trust’s assets. Practically speaking it is the asset manager, or the pension fund.
Financial Market: a place where people buy and sell securities.
1. Capital Market: trades securities with long maturities (> 1 year) issued by companies and government to raise money, in the form of shares, bonds or loans. Primary Market: buying the shares offered to the public for the first time (Initial Public Offering) or new issue of bonds. Secondary Market: buying and selling existing shares or bonds.
  1. Stock Market: trades equity / shares, mostly in a Stock Exchange.
  2. Debt Market: trades bonds and Mostly OTC.
2. Money Market: trades securities with short maturities (usually a few days, max of 1 year) such as certificate of deposit (CD)
3. Derivative Market: trades options, futures, swaps and forwards.
4. Currency Market. trades currency pairs. The biggest Also known as FX Market or Foreign Exchange Market.
5. Commodity market: trades precious metal such as gold and silver, energy such as oil and power, or agricultural products such as wheat and corn.
Financial Ratio: a number divided by another number which shows the financial condition of a company.
1. Earnings per share (EPS): net income divided by number of shares.
2. Price-to-book ratio (P/B): share price divided by ((asset minus liabilities) divided by the number of shares).
3. Price-to-earnings ratio (P/E): share price divided by EPS.
4. Cyclically Adjusted Price Earnings ratio (CAPE): share price divided by sum of (EPS in the last 10 years x Inflation Factor)/10. Also known as the Shiller Ratio or P/E 10 Ratio.
Fixed Income: security with fixed periodic interest such as bonds. See also: Bond.
1. Government Bonds: sovereign bonds, supranational bonds, agency bonds, regional bonds (municipal), index-linked bonds. Treasuries (US), gilts (UK), bunds (German).
2. Corporate Bonds: financials/non-financials, cyclical/non-cyclical, investment grade/high yield aka IG Corp and HY Corp.
3. Convertible Bonds: bonds that can be converted into equity.
4. Certificate of Deposits: money in the bank for a fixed term, earning interest
5. Preference Share: a share which the holder receives a fixed dividend (called coupon). The fixed dividend must be paid before the ordinary shares. Also known as Preferred Stock. It does not have a voting right. It is subject to interest rate risk. It is subject to credit risk. It is more of a bond than equity.
6. Leveraged Loans: senior secured corporate loan to a high yield company
7. Asset Backed Securities: a bond with loans or mortgages as underlying asset
Fund: a fund is investment portfolio managed by an asset management company, which people can invest in.
1. Closed-end fund: the number of shares in the fund is fixed. New investors have to buy the shares from existing investors.
2. Open-end fund: the number of shares in the fund is flexible. When more people invest, new shares are created. When people sold the investment, the number of shares is reduced.
3. Pooled fund: the source of money is from many people. Also known as mutual fund or collective investment scheme. Opposite: segregated mandate.
4. Segregated mandate: the source of money is from one company. Opposite: pooled fund.
5. Hedge fund: a fund that can invest in any asset classes, use a lot of leverage, and using long-short strategy. Opposite: mutual fund (can only invest in equity, cash and bond, not using much leverage, long only).
6. Active Fund: the fund manager decides what shares/bonds to buy and sell, and when, in order to beat the benchmark.
7. Passive Fund: the fund manager buys most of the shares/bonds that make up an index, in order to track that index. For a large index, they use sampling. Also called Index Fund or Tracker Fund.
8. Smart Beta Fund: a fund which tracks an index that focuses on shares with low volatility, momentum, value, quality, size, share buybacks, or a combination of these factors. It is mainly equity funds at the moment.
9. Multi Manager Fund: a fund which invests in other funds.
Fund Sector: the grouping of funds based on their geography and characteristics. The most widely used grouping is from Investment Association. Most of IA Fund Sectors are obvious because they are regional, e.g. Asia Pacific. But some of Fund Sectors are not obvious, such as Equity Income, and they are listed here.
1. Flexible Investment fund: the fund manager has flexibility over what to invest in e.g. equity, fixed income, cash, and currency. Also known as Multi Asset fund.
2. Equity Income fund: at least 80% is in equity and intend to achieve a historic yield more than 10% above the MSCI World Index yield.
3. Money Market fund: a fund which invests in money market instruments and deposits in credit institutions, and satisfies the FCA criteria in COLL 5.9.5.
4. Personal Pension fund: a fund which only to be used for personal pension plan or Free Standing Additional Voluntary Contribution scheme (FSAVC).
5. Property fund: at least 60% in property or at least 80% in property securities.
6. Protected fund: a funds other than money market funds, which principally aim to provide a return of a set amount of capital back to the investor plus the potential for some investment return.
7. Specialist fund: a fund with an investment universe which is not accommodated by the mainstream fund sector.
8. Short Term Money Market fund: a fund which invests in money market instruments and deposits in credit institutions, and satisfies the FCA criteria in COLL 5.9.3.
9. Sterling High Yield fund: at least 80% in GBP bonds (or hedged to GBP) which rating is below BBB minus, including unrated bonds but excluding convertible bonds, preference shares and PIBS
10. Sterling Strategic Bond fund: at least 80% of the asset is in GBP denominated bonds (or hedged to GBP), excluding convertible bonds, preference shares, and PIBS.
11. Targeted Absolute Return fund: a fund which aims to deliver a positive return in any market conditions.
12. UK All Companies fund: at least 80% in the UK equities with the primary objective of achieving growth.
13. UK Gilt fund: at least 95% in GBP government bonds (or hedged to GBP) with a rating higher or the same as UK, and at least 80% in UK government bonds.
14. UK Index Linked Gilts fund: at least 95% in GBP government bonds (or hedged to GBP) with a rating higher or the same as UK, and at least 80% in UK Index Linked government bonds
15. UK Smaller Companies fund: at least 80% in the bottom 10% UK companies by market capitalisation.
16. Unclassified fund: a fund which does not want to be classified into other fund sectors, such as private funds.
Fund Statistics:
1. Alpha: an indicator of how much the fund outperforms a risk-free security. An alpha of 5 means that the fund outperforms a risk-free security by 5%.
2. Beta: an indicator of how large the fund price changes relative to the benchmark price change. A beta of 1.5 means that if the benchmark falls by 3%, the fund will fall by 4.5%. A beta of 0.5 means that if the benchmark falls by 3%, the fund will fall by 1.5%.
3. Excess Return: the performance return of the fund minus the performance return of the benchmark.
4. Information Ratio: excess return divided by tracking error. The higher the Information Ratio of a fund, the more performance we get (compared to the benchmark), for the same amount of risk (with risk being the tracking error).
5. Sharpe Ratio: (the performance return of the fund minus the performance return of a risk-free security) divided by the standard deviation of the fund. The higher the Sharpe Ratio of a fund, the more performance we get (compared to a risk-free security), for the same amount of risk (with risk being the volatility).
6. R²: 1 minus (A/B), with A = sum of the square of (the fund daily return minus the benchmark daily return), and B = sum of the square of (the fund daily return minus the fund average return). It is an indicator of how close is the correlation between the fund and the benchmark. If the R² is low, the benchmark is unsuitable.
7. Tracking Error: the standard deviation of the difference between the fund performance return and the benchmark performance return.
8. Volatility: the standard deviation of the fund performance return (not the fund’s price). Standard deviation is the square root of variance. Variance is the average of (the square of the difference between the daily fund performance return and the average return).
Greeks: the sensitivity of the price (for derivatives)
1. Delta: how much the price of an option changes when the price of the underlying equity changes by 1%
2. Delta neutral trade: buying call and put options, so that when the underlying equity changes, the portfolio value does not change.
3. Gamma: how much the delta of an option changes when the price of the underlying equity changes by 1%
4. Vega: how much the price of an option changes when the volatility of the underlying equity changes by 1%
Interest Rate Swap: an exchange of interest rate payments. We pay a fixed rate and receive a floating rate, to eliminate the risk of rate increase. Alternatively, we pay a floating rate and receive a fixed rate, to gain from a lower rate in the future.
Instrument: a financial instrument or a security is a financial asset which can be traded. They are: equities, debt, cash, commodities, foreign exchange, and derivatives. A property such as land and building is an asset but it is not a financial instrument because it is not tradable.
1. Equity instrument: a financial instrument which is a share of ownership in a company. In the US it is called Stock. In Europe it is called Shares.
2. Debt instrument: a financial instrument issued a company or a government as a way to borrow money, with 1 year duration or more. They are: bonds, notes, certificates, mortgages, leases.
3. Cash instrument: money held in a bank account in certain currency, or a money market instrument (such as certificate of deposit, repurchase agreement, commercial papers), or a very short term bond.
4. Commodities: primary/base products such as metal, energy and agricultural products. Mining products: precious metal (gold, silver, platinum, palladium), base metals (copper, zinc, aluminium, nickel, tin), ferrous metal (iron ore, steel). Energy products: crude oil, natural gas, electricity, coal, refined products, biofuels, petrochemical. Agricultural products: corn, soybean oil, wheat, cattle, hog, milk, butter, cheese, timber, cocoa, sugar, palm oil. Other: diamond, rubber, wool.
5. Derivative instrument: a financial instrument which value is determined from an underlying instrument.
Instrument ID: a unique identifier of a tradable financial instrument/security.
1. Bloomberg Ticker (BBG ID): a unique security identifier used in Bloomberg terminal covering shares, bonds, MBS, CMO, ABS, IRS, FRA, basis rates, volatility, indices, equity options, currencies, futures, option on futures, money market rates, energy.
2. CINS (CUSIP International Numbering System): like CUSIP but for securities outside US and Canada.
3. CUSIP (Committee on Uniform Security Identification Procedures): a unique security identifier in US and Canada, covering shares, bonds, index options, funds, CDs, MBS, CP, syndicated loans. CUSIP consists of 9 characters. The first 6 characters is the issuer ID. Options and futures don’t have CUSIP. It is maintained by Standard & Poor’s.
4. ISIN (International Securities Identification Number): a worldwide unique identifier for a security. Not only shares but also bonds, options, futures, funds. ISIN does not specify in which Stock Exchange the security is listed. It does not identify the issuer.
5. RIC (Reuter Instrument Code): a unique instrument identifier issued by Thomson Reuters covering shares, bonds, indices.
6. SEDOL (Stock Exchange Daily Official List): a unique security identifier in the UK. It is 7 characters. It is maintained by London Stock Exchange.
7. Ticker: a stock symbol used to identify shares traded in a particular stock market. It is either Bloomberg Ticker, Reuters RIC or TIDM/EPIC.
8. TIDM (Tradable Instrument Display Mnemonic): the unique identifier of shares in London Stock Exchange. It is UK It was called EPIC (Exchange Price Information Code).
9. VALOR Number: the security identifier in Swiss stock exchange.
10. WKN (Wertpapierkennnummer): the security identifier in German stock exchange. Also known as WPK.
Issuer ID: a unique identifier of the issuer of a bond or a share.
1. CICI (CTFC Interim Compliant Identifier): identifier for all legal entities dealing in OTC derivatives in Commodity Futures Trading Commission (CFTC). To be replaced by LEI.
2. CUSIP-6: the first 6 characters of CUSIP which identify the issuer. CINS-6: like CUSIP-6 but for CINS. See also: CUSIP, CINS.
3. CMA Entity ID: the identifier of an organisation from Credit Market Analysis (now S&P Capital IQ).
4. DUNS Number (Data Universal Numbering System): an identifier a company or a government, worldwide. It is not just issuers of bonds/shares, but all companies and governments in the world. It is maintained by Dun & Bradstreet.
5. Fitch Issuer ID: unique identifier of a debt issuer, maintained by Fitch.
6. GV Key: a global company identifier issued by Compustat. It is a 6 digit number. Covers public & private companies, ETFs, structured products,
7. LEI (Legal Entity Identifier): global identifier for a legally distinct entity that engages in a financial Supported by FSB and G20. Provided by DTCC and Swift. It is called GMEI (Global Market Entity Identifier) by DTCC.
8. Obligor ID: the unique identifier for a recovery obligor in Moody’s DRD (Default & Recovery Database) and URD (Ultimate Recovery Database). In CPMI, the Obligor ID contains LEI.
9. Moody’s Issuer Number (MIN): unique identifier of debt issuer, maintained by Moody’s. It is a 10 digit number.
10. Markit RED Code (Reference Entity Database): the identifier of reference entities trading in CDS market, maintained by Markit. It is a 6 characters. The reference obligations are 9 characters.
11. S&P Ratings ID: unique identifier of a debt issuer, maintained by Fitch.
Liquidity: how much volume a security is traded. If it is traded thousands times a day it is a liquid security. If it is only traded a few times a month it is an illiquid security. Another view: a liquid security is a security that we can sell within a few days, without causing a lot of decrease in price. An illiquid security is a security that we have to wait for weeks or months to sell it at normal price; or we can sell it this week at a large discount.
Margin: the deposit in the futures market that buyers and sellers have to give to their brokers. The second meaning is borrowing money from the broker to trade.
Mark to market: to get the fair market value of an OTC Derivative security, such as Interest Rate Swap.
Market Trend: a long term characteristic of financial markets to move up or down.
1. Bull market: a time period in the financial markets when the prices of financial instruments keep rising for a long period of time (more than 1 year) to more than twice the original prices. The scope of the market can be one country (e.g. China or India), several countries (e.g. emerging markets, or Asia), one asset class (e.g. bonds), several asset classes (e.g. equities and bonds), or the whole world. A bull drives its horns up into the air when attacking, hence the term.
2. Bear market: a time period in the financial markets when the prices of financial instruments keep falling for a long period of time (more than 1 year). The scope of the market can varied as per the bull market above. A bear swipes its paw downward when attacking, hence the term. 20% decline in 2 months period is an indicator of a bear market.
3. Market correction: a time period in the financial markets when the prices fall 5% to 20%, and then the prices go back up again, in less than a year.
4. Dead cat bounce: a time period in the financial markets when the prices rise for 10% to 20%, and then the prices fall again, in less than a year.
Maturity Date: the final payment date of a bond where the issuer pay the face value.
1. Effective maturity date: the first call date of the bond.
2. Maturity: the number of years from today until maturity date. Stated in fraction, for example: if the maturity date is 30/9/2022 and today is 19/10/2015, then the maturity is 2538 days / 365.25 = 6.9486653.
3. Effective maturity: the number of years from today until the effective maturity date.
Net Asset Value (NAV): (the total value of all positions in the fund minus the liabilities) divided by the number of outstanding shares. The positions include both securities and cash positions. The securities are valued at today’s close market price.
Order Types (see also: Trade Types)
1. Market Order: an order from a client to a broker to buy or sell a security at whatever price the market is at, when the order is executed.
2. Limit Order: an order from a client to a broker to buy a security only when the market price is below a certain price. Or to sell a security only when the market price is above a certain price.
3. Stop-Loss Order: an order from a client to a broker to sell a security that the client has, when the market price is below a certain price.
Performance Return: how much the Net Asset Value changed between {a date in the past} and today. For 1 year performance return, the date in the past is a year ago. For 3 year performance return, the date in the past is 3 years ago.
1. Gross Performance Return: before the fees are deducted.
2. Net Performance Return: after the fees are deducted.
3. Outperformance: the return of the fund minus the return of its benchmark.
Price: for shares and commodities, price is determined from the last recent trade. For a bond, it is the present value of all future cash flow. For an option, the price is the premium. For a CDS, the price is the CDS spread.
1. Ask Price: the lowest price that a seller is willing to receive. Also known as Offer Price.
2. Bid Price: the highest price that a buyer is willing to pay.
3. Mid Price: the average of (Ask Price and Bid Price).
4. Opening Price: the price of the first trade on that day.
5. Closing Price: the price of the last trade on that day.
6. Dirty Price: the present value of all future cash flow, including Accrued Interest.
7. Clean Price: the present value of all future cash flow, excluding Accrued Interest. The price on the Bloomberg terminal is Clean Price. Clean Price = Dirty Price minus Accrued Interest.
Rating: capability of an issuer to fulfil its financial commitments. The correct term is “Credit Rating”. The top 3 credit rating agencies are S&P, Moody’s and Fitch.
1. Investment Grade (IG): a bond with credit rating of AAA to BBB.
2. High Yield (HY): a bond with credit rating of BB to D.
Regulation about investment funds:
1. AIFMD (Alternative Investment Fund Managers Directive): financial regulation applicable to hedge funds, alternative investment managers, private equity fund managers and real estate fund managers in the European Union.
2. UCITS 5 (Undertakings for Collective Investment in Transferable Securities 5): a public company which manages investment funds in the European Union. UCITS allows funds to operate freely throughout the EU when one member country authorised it, and requires funds to appoint a depositary.
3. MiFID 2 (Market in Financial Instruments Directive 2): provides financial product consumers with better clarity, higher ethical standards and more thorough reporting.
4. EMIR (European Market Infrastructure Regulation): an EU regulation covering OTC, Central Counterparties and Trade Repositories to minimise counterparty credit risk.
5. FATCA (Foreign Account Tax Compliance Act): US citizens must report their financial accounts and assets located in other countries, and financial institutions outside US must report the financial accounts and assets of US citizens to the US government.
6. CRD 4 (Capital Requirement Directive 4): EU capital requirement regulation for credit institutions and investment companies implementing Basel III requirements.
7. MAD 2 (Market Abuse Directive 2): regulation on insider dealing and market manipulation.
Regulator: a government body in various countries that issue rules of how investment management companies should operate.
1. Global Regulator: FSB (Financial Stability Board), IOSCO (International Organization of Securities Commission)
2. US Regulator: SEC (Securities and Exchange Commission), FINRA (Financial Industry Regulatory Authority), CFTC (Commodity Futures Trading Commission)
3. EU Regulator: European Commission, ESMA (European Securities and Markets Authority), EIOPA (European Insurance and Occupational Pensions Authority)
4. UK Regulator: PRA (Prudential Regulation Authority), FCA (Financial Conduct Authority)
Registrar: a company that keep a register of the holders of the unit trust shares or subscribers of the fund. See also: custodian, depositary.
Repo (Repurchase Agreement): buying a bond then lend it back to the seller for a few days.
Risk Free Security: a financial instrument which we are 100% certain that we will get the predicted return. For example: Treasury bills, cash in the bank, and money market instrument.
Share Class: for a share, class A is offered during IPO to new investors, and class B is offered to existing shareholders with enhanced voting rights. Sometimes the reason is withholding tax on dividends. For a fund:
1. Accumulation share class: the income (such as dividend and coupon) is invested back into the fund.
2. Income share class: the income is paid to investors in cash.
3. Net share class: the fund manager deducts the tax when paying the income to the investor.
4. Gross share class: the fund manager does not deduct the tax when paying the income to the investor.
5. Clean share class: after the Retail Distribution Review (RDR), the Annual Management Charge (AMC) that the investor pays includes the trail commission for the broker or platform. Also known as No Trail share class.
6. USD/EUR/GBP share class: the fund is created with different base currencies.
Sector: a way of classifying shares and bonds based on the industry sector of the issuer. Each of the providers below maintained a list of which company belong to which sector, worldwide (unless specified otherwise).
1. Barclays Sector Classification: classifications of all issuers into 4 level 1s (treasury, government-related, corporate, securitized), 12 level 2s, 31 level 3s, and 72 level 4s.
2. GICS (Global Industry Classification Standard): classification of all public companies into industry sectors maintained by MSCI and S&P. It consists of 10 sectors, 24 industry groups, 67 industries, and 156 sub industries.
3. Markit iBoxx Corporate Sectors: classification of industry sectors maintained by Markit and used in their iBoxx indices. It consists of 2 top levels (financials & non-financials), 10 economic sectors, 19 market sectors, and 36 market sub-sectors.
4. ICB (Industry Classification Benchmark): classification of 70k companies and 75k securities into industry sectors maintained by FTSE. It consists of 10 industries, 19 super sectors, 41 sectors, and 114 subsectors. It is used by NASDAQ and NYSE.
5. ISIC (International Standard Industrial Classification of All Economic Activities): classification of economic activities created by United Nation. No mapping between companies and ISIC.
6. Moody’s 35: a classification of all issuers into 35 industry categories.
7. NAICS (North America Industry Classification System): a classification of industry sectors maintained by US and Canada governments. No mapping to companies.
8. Sector Team: investment banks and asset managers split the team into sectors such as: Consumer & Retail, TMT (Technology, Media, Telecom), Industrial (Manufacturing, Infrastructure, Construction, Defence), FIG (Financial Institution Group), Natural Resources (Mining, Oil, Power, Utilities), Healthcare, Property.
9. SIC Codes (Standard Industrial Classification): a classification of industry sector for each company in the UK registered with the Companies House. Maintained by ONS. Consists of 21 sections, 86 divisions, 272 groups, and 615 classes. SIC Codes are originally from US, replaced by NAICS, but SEC still uses SIC codes.
10. TRBC (Thomson Reuters Business Classification): classification of industry sector maintained by Thomson Reuters consisting of 10 economic sectors, 25 business sectors.
Seniority: the order in which a bond (or a loan) is paid, if the issuer / obligor went into liquidation.
1. Senior Bond: A bond which is paid first when the issuer went into liquidation.
2. Subordinated Bond: A bond which is paid after the senior bonds have been paid, if the issuer went into liquidation. Subordinated Bonds have 4 levels, from the lowest they are: Tier 1, Lower Tier 2, Upper Tier 2 and Tier 3. Subordinated Bonds are paid before the shareholders.
3. First Lien Loan: a secured loan which, if the obligor went into liquidation, is paid before the second lien. It is paid by selling the collateral.
4. Second Lien Loan: a secured loan which is paid after the first lien loans have been paid. It is paid by selling the collateral.
Spread: there are 2 meanings of spread: 1) The difference between asking price and bid price, and 2) The difference the yield of an instrument and the reference rate (usually Libor for cash instruments and government bond for debt instruments). The second one is also known as Credit Spread or Yield Spread. See also: Spread Duration.
1. Zero Volatility Spread (Z-Spread): a spread which, when added to the zero-coupon Treasury yield curve will make the price of the bond equal to the current market price.
Stock Picking: a method of choosing which shares to buy
1. Bottom Up: we evaluate each company individually and choose based on its predicted financial performance, regardless of its sector or country. See also: Sector.
2. Top Down: we allocate the portfolio into different industry sectors and countries. The allocation percentages are based on the predicted performance of that sector and country.
Trade: to buy or sell a security such as bonds, shares, or derivatives. Second meaning: to create a derivative contract with a counterparty. Third meaning: to invest or hold a position for a few hours.
1. Trader: a person who buys or sells securities.
2. Trade Life Cycle: order initiation, order execution, risk management, order routing, order matching, conversion into a trade, affirmation, confirmation, clearing, settlement.
3. Trade Out: to cash-in a holding or a position.
4. Trading Desks: a group of 3-10 people in a trading room doing analysis and trades, specialising in a particular asset class or sector such as IG Bonds, EM Bonds, shares, FX, and commodity.
5. Trading Room: a room in an investment bank or asset manager full with Bloomberg Terminals, TradeWeb and Reuters Eikon where traders place their orders. Also known as Front Office, Dealing Room and Trading Floor.
Trade Types (see also: Order Types)
1. Spot Trade: buying or selling an asset with/for cash and the settlement is within 3 days.
2. Future Trade: buying or selling an asset with the settlement date of 3 months or more.
3. Swap Trade: a contract to exchange cash flow.
4. Automated Trade: trades generated by computer system based on a predefined logic/rules, e.g. scalping, momentum, stop loss. Also known as Algo (algorithmic trading).
5. Block Trade: a trade with very large quantity, executed privately “behind the scene” between two parties to get a good price. It’s not OTC as the trade will be booked later on the exchange.
6. Cross Trade: a broker matching a buy order from one client and a sell order with the same quantity and price from another client, without booking the trade on the exchange.
Trading Strategies: a method used to decide when to buy or sell
1. Arbitrage: to gain from price differential by buying in a stock exchange with low price and sell it in a stock exchange with a higher price. Or buying a share or index when its corresponding future has a higher price (or lower price if shorting).
2. Algorithmic: using mathematical model to decide buying and selling
3. Fading: buying at the top for shorting
4. High Frequency Trading (HFT): placing large numbers of orders in a short time in several stock exchanges simultaneously based on a preprogramed plan
5. Index Fund Rebalancing: buying a new entry on the benchmark, on the day it appears on the benchmark, before the index funds buy that entry (share or bond).
6. Mean Reversion: buying when the security deviates away from the mean and sell when it comes back to the mean.
7. Momentum: buying when the security is on its way up, or shorting on its way down
8. Pivot: buying at the bottom for long
9. Volume Weighted Average Price: breaks a large order into small orders as small orders has more chance of getting better price.
10. Scalping: selling as soon as it becomes profitable
11. Swing: to hold for more than 1 day
12. Time Weighted Average Price: breaks a large order into small orders executed at different hours during the day, when the price is close to the average price.
Yield (for a bond): yield is the return divided by the investment value. In property business, yield is the rental income divided by the property value. In fixed income, it is coupon divided by the bond value (see Yield To Maturity, Yield To Call and Current Yield). In equity, it is the dividend divided by the equity value.
1. Current Yield: the value of bond coupons for a year / purchase price x 100. Also known as Running Yield or Income Yield or Flat Yield. It is just the coupon without the price growth.
2. Simple Yield: (the value of bond coupons for a year + 100 – purchase price) / purchase price x 100. It is coupon + price growth.
3. Yield To Call: a callable bond means it can be re-bought by the issuer before maturity. Yield To Call is the value of all coupons until the call date, plus the principal amount received from the issuer at the call date, divided by today’s bond value.
4. Yield To Maturity: the value of all coupons that will be received until maturity, plus the principal / face value, divided by the today’s bond value. Also known as Redemption Yield.
5. Yield To Put: a putable bond means that we (the bond holder) can sell it back to the issuer, before maturity. Yield To Put is the value of all coupons until the put date, plus the principal amount received from the call date at the put date, divided by today’s bond value.
6. Yield to Worst: the worst of (Yield To Maturity, Yield To Call and Yield To Put)
Yield (for a fund): the total income generated by a fund for a year.
1. Historic Yield: dividend in the last 12 months divided by today’s fund price. It is for an equity fund. The fund price is NAV (per share).
2. Distribution Yield: (income expected in the next 12 months) divided by today’s fund price. It is for a bond fund, ETF and REIT.
3. Underlying Yield: (income expected in the next 12 months + predicted capital growth – annual fund charges) divided by today’s fund price. It is for a bond fund, ETF and REIT.
Yield Curve: a graph where the X axis is various maturity of a bond (3M, 6M, 1Y, 2Y, 5Y, 10Y, 15Y, 20Y, 30Y) and the Y axis is the Yield to Maturity (Redemption Yield) of the bond.
1. Par Yield Curve: a Yield Curve when the bond is trading at par. Usually used in the primary market to determine the coupon.
2. Spot Yield Curve: a Yield Curve but the Y axis is zero-coupon yields. Also known as Term Structure of Interest Rates.
3. Yield Curve Surface: a 3D graph where the X axis is the year (e.g. 1990 to 2015), the Y axis is the Yield to Maturity of a bond, and Z axis is various maturity of the bond.

Source: Wikipedia, Investopedia, Trustnet, Pimco, FT Lexicon, IA, HL, Forbes, Nasdaq, SEC, FCA.

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