The IRS Dictionary of Investing Terms

Words in italics are themselves defined elsewhere in the Dictionary.

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Successful Personal Investing (SPI) is designed to provide authoritative education and training in the subject matter covered. While the publisher has taken all reasonable care in the preparation of this publication, its accuracy cannot be warranted. Materials and examples in SPI do not constitute advice on the making or changing of any particular investment. If financial advice or other expert assistance is required, the services of a competent professional person should be sought. For these reasons the publisher will not be liable for any loss arising from investments made or changed in reliance on statements contained in SPI.

Accelerated Depreciation: Allocating the cost of an asset over its useful life so that more of the cost is set against income in earlier years than in later years.

Acceptance: Taking up a company's offer to buy shares e.g. in a takeover, or agreeing to buy new shares, such as in a rights issue.

Account: Until July 1994 the Stock Exchange divided the year into 24 trading periods, each called an "account". After the account had ended, investors paid - or were paid by - their stockbroker in one go for the cost - or proceeds -of all transactions undertaken during the account. The account system has been replaced by rolling settlement.

Accounting Standards Board: See ASB.

Accounts Payable: The amount owed by a business.

Accounts Receivable: The amount owed to a business.

Accrual Rate: The rate at which guaranteed-sum pension rights grow. Usually shown as a percentage or fraction. Those in a l/60th or 1.66 per cent pension scheme will get one sixtieth of pensionable earnings for every year worked. So those who have worked 40 years will get two thirds of their final salary. See Final Salary Scheme.

Accrued Interest: Interest payments which are earned but not yet payable or which are added to the value of the original investment instead of being distributed. Interest on National Savings & Investments Certificates works like this.

Accumulation and Maintenance Trust: A family trust which allows the trustees to retain the income and add it to the capital in the trust until the beneficiaries reach the age of 25. The trustees have the option of paying out all or part of the income for the children's maintenance or benefit, and they can retain control of the capital indefinitely.

Accumulation Units: Unit trust units where net dividends, excluding the dividend tax credit, are not paid out, but are reinvested so as to increase the unit value.

Acquisition: When one company takes control of another. Shareholders of the old company are given cash or shares in the acquiring company, as payment. See Takeover.

ACT: Advance Corporation Tax was a tax payment made by companies on dividends paid to shareholders before April 1999. It was mathematically equal to the tax credit on dividends. This still continues at 10 per cent even though ACT has been abolished.

Actuals: Tangible commodities or shares as opposed to options or futures.

Actuaries: The mathematical experts behind pension and life assurance schemes. They calculate mortality tables to show how long the average person of any age will live, so as to establish the necessary premium levels.

Additional Voluntary Contribution: See AVC.

ADR: American Deposit Receipt - receipts for UK shares left on deposit with American banks. US investors buy and sell ADRs to avoid the higher expense of trading actual shares in London.

Advisory Client: An investor who receives advice from his stockbroker and who gives his consent before the broker takes any action on his behalf.

AER: The Annual Equivalent Rate is a notional rate illustrating what the interest rate paid to you would be if it were paid annually. So a gross rate of 10 per cent paid monthly equals an annual rate of 10.47 per cent.

Affinity Card: Credit card issued by a bank which makes a donation to a charity on take-up and use of the card.

Age Allowance: Personal allowance against income for a person aged 65 or over. The age allowance increases for a person of 75 or more, but is reduced if income exceeds a certain level.

Agency Cross: A broker simultaneously buying and selling the same number of shares.

Aggressive Income Investor: An investor who accepts higher risks in an effort to gain higher rewards. See Dedicated Income Investor and Transient Income Investor.

AGM: Annual General Meeting - the yearly meeting of the shareholders called by the board of directors of a company. It is the shareholders' chance to have a say in the way their company is run.

Agreed Bid: Takeover bid approved by the board of the target company.

AIM: Alternative Investment Market - a trading facility provided by the Stock Exchange for small or start-up companies, with less demanding listing requirements than for a full stockmarket quotation.

AITC: Association of Investment Trust Companies. The trade association for investment trusts. So, like the IMA, it is not impartial.

All-Share Index: See FTSE All-Share Index; for other indices, see also FT 30 Index FTSE 100 Index, FTSE All-World Index, FTSE SmallCap Index.

Allotment Letter: A letter confirming the right to purchase a number of newly issued shares.

Allowance (Tax): A sum of money that you may receive which is free from tax.

Alternative Investment Market: See AIM.

American Deposit Receipt: See ADR.

Amortisation: The process of extinguishing debt over time -e.g. the term over which a mortgage is repaid or the reduction of the premium carried by a bond. In accounting it is used to write off the cost of an intangible asset, or an asset such as a leasehold property held for a set period, spread over the asset's life.

Analyst: Investment analysts study the performance of companies and make recommendations for share dealing on the basis of that research.

Annual General Meeting: See AGM.

Annual Percentage Rate: See APR..

Annual Report: Yearly statement of the affairs of a limited company which the directors are obliged to provide to shareholders, normally including the latest profit and loss account and balance sheet. The report must be filed at Companies House within 10 months of the end of the trading period. Small companies need only file abbreviated accounts.

Annuity: A contract to pay a set income annually while the policyholder (or sometimes policyholder's spouse) is alive in return for an initial lump sum payment. Sold by insurance companies to provide retirement income. Rates vary according to the age and sex of the purchaser.

Appropriate Personal Pension: Pension funded only by National Insurance rebate provided by contracting out of S2P.

APR: Annual Percentage Rate - legally defined formula intended to show the true yearly cost of a loan, including arrangement fees and the timing of interest payments during the year. Lenders are obliged to quote their APR when advertising loans, to give borrowers a benchmark to which to compare the cost of different loans. See AER..

Arb: Short for arbitrageur -one who practises arbitrage. Often used to describe Wall Street speculators who accumulate blocks of shares in advance of or during takeovers.

Arbitrage: The process of simultaneously buying and selling shares or currencies in different markets to exploit price differences.

Arrangement Fee: Fee charged by banks or building societies for arranging loans such as overdrafts or mortgages.

ASB: Accounting Standards Board, the independent body responsible for drawing up the Financial Reporting Standards.

Asset Play Shares: Often highly cyclical shares, such as those of oil or mining companies, whose value depends on wealth in the ground rather than earnings.

Asset Stripping: The sale of some or all of the assets of a company, usually acquired by takeover. The parts of the company may be more valuable than the whole concern in its existing form. See Unbundling.

Assets: Possessions of an individual or company which have value in money terms.

Assets Turnover Ratio: See Capital Turnover Ratio.

Assignment Notice: A formal notification from LCH to a writer requiring fulfilment of his contractual obligation to buy or sell the underlying security.

Associated Operations: Two related financial operations. For tax purposes, refers to a contrived situation to obtain a tax advantage.

Assured Tenancy: Legal term defining a secure tenancy at a rent which at least initially is not controlled (Housing Act, 1988).

At Best: An order to a stockbroker to get the best possible price as opposed to stating the price at which to buy or sell.

At-the-money: When the exercise price of an option and the market price of its underlying security are the same.

Audit: Professional preparation of a company's Statutory Accounts, normally undertaken annually. See Auditor.

Auditor: Accountants employed by companies to prepare their accounts and to give a short report which is included in the annual accounts. Companies are required by the Companies Act to appoint professionally qualified auditors to prepare Statutory Accounts.

Authorised Unit Trust: A unit trust which meets the rules governing the industry authorised by the Department of Trade and Industry, which also vets the company launching the trust.

AUTIF: Association of Unit Trusts and Investment Funds -the name of the former trade association of unit trust managements. Superseded by the IMA in 2002.

AVC: Additional Voluntary Contribution ñ a method of increasing a pension fund. Extra payments may be added up to Inland Revenue permitted limits and they will be exempt from income tax.

Averaging Down: An investment strategy often used by novice investors, involving chasing a share by making more purchases as the price falls. The rationale is that investors will cut losses by creating a lower average purchase price.

Averaging Up: This investment strategy involves buying more of a share that is going up in price. It is often a losing game in that it merely reduces the average profit per share because more shares are bought at a higher price.

"Back to Back" Bonds: Bonds commonly advertised as paying a "guaranteed income with return of capital". One third of the investment goes into a fixed-term annuity, usually for five years. The rest goes into a unit trust or insurance bond. Return of the original capital is only possible if the unit trust or bond grows by around 50 per cent over five years. So only the income is guaranteed, not the capital.

Backwardation: A word used in the commodities market when the spot price is higher than the futures price. See Contango.

Balance of Payments: The surplus or deficit on all overseas payments made by one country to others on both current and capital account. Current account includes trade in visible goods imported and exported (see Balance of Trade) and earnings or payments for invisible earnings such as insurance, banking and tourism. Capital account covers movements of money for investment purposes.

Balance of Trade: The difference between the amount spent by a country on import of goods and that received for export of goods. Expressed as a deficit or surplus.

Balance Sheet: A "snapshot" of a company's financial health taken at a specific time. A key element in the annual report, it shows assets and liabilities.

Balanced Trust: A unit trust which has both equities and gilts or fixed interest stock in its portfolio, but less than 80 per cent of either.

Ballot: Method of allocating shares in a new issue which is oversubscribed. See Weighted Ballot.

Baltic Exchange: Meeting place in the City for shippers and brokers to negotiate the cost of transporting goods by ship, tanker or aircraft. Some commodities exchanges are also situated here.

Band Earnings: Earnings between the lower and upper earnings limits, used in calculating National Insurance Contributions and benefits.

Bank of England: The central bank of Britain. It acts as a banker to the other banks, fixes Bank Rate, and runs a brokerage service for gilts.

Bank Rate: Popular term for the Official Dealing Rate, the rate at which the Bank of England creates or funds short-term deficits in the banking system. Bank Rate effectively determines the level of commercial banks' lending rates. Since 1997 it has been the Bank's sole responsibility to set the rate. Before then, the Bank had advised the government on the appropriate rate. But except between 1972 and 1985 the government could and did ignore the advice the Bank offered.

Bargain: A transaction to buy or sell shares or other securities.

Base Rate: The foundation of every bank's structure of interest rates. Depositors are paid interest rates below the base rate, and borrowers are charged rates above the base rate. Banks alter their base rates when the Bank of England changes the Bank Rate.

Basic Rate Tax: Rate of tax paid on band of income or capital gains lying between the lower rate tax band and the higher rate tax band.

Basis Point: One hundredth of one percentage point, i.e. one hundred basis points equals one percentage point. Often used in relation to the setting of interest rates by central banks and in the pricing of bonds.

Bear: Stockmarket jargon for a pessimist - someone who thinks that the market is going to fall and sells shares or options in the belief that they can be bought back later at a cheaper price. The opposite of a Bull.

Bear Call Spread: A strategy used in traded options trading by bears who buy a put option and simultaneously sell another with the same expiry date, but at a different exercise price. The aim is to increase potential reward and reduce risk compared with a straight option purchase or sale. See Bull Call Spread.

Bear Hug: An attractive offer made to a target company by an acquisitor - one that it feels obliged to accept.

Bear Market: If the market on average is falling, i.e. bears are in the majority, it is said to be a bear market. See Bull Market.

Bear Raid: A concerted attempt by stockmarket traders to force down the price of a company's share, often by selling shares which the traders don't yet own, in the hope of buying them back more cheaply later.

Bear Squeeze: A sharp rise in the price of a share which has fallen rapidly, engineered by market-makers in an attempt to force traders whom they suspect of selling shares they don't yet own to suffer losses, as they are obliged to buy the shares back at higher prices than they got for them.

Bearer Stocks or Shares: Securities where the certificate is the sole proof of ownership. No register of owners is maintained.

Bed and Breakfast: Practice outlawed in the 1998 Budget of selling a share one day and buying it back the next, to establish a loss for capital gains tax purposes.

Benchmark Gilt: A "typical" government stock against whose yield other stocks of similar maturity, particularly those of other governments, can be measured.

Beneficial Owner: The true owner of a security or property. Not necessarily the registered owner who may be a nominee.

Beneficiary: A person - for example a child - on whose behalf a trust is set up and administered.

BES: Business Expansion Scheme - scheme available from 1983 encouraging investment in unquoted companies by providing tax relief at investors' highest marginal rate. Superseded by EISs in 1994.

Best Advice: The requirement under the Financial Services Act that an adviser must base his recommendations on a full unbiased consideration of the available financial products and full knowledge of his client's personal situation.

Beta Coefficient or Factor: A measure of how risky an individual share is by comparing its price performance with the overall market. For example, a typical share in the FTSE All-Share Index has a beta of one. Betas of less than one mean that the share or unit trust is exposed to less than average risk. Betas of more than one indicate that risk - and potential reward - are above average.

Bid: An offer to buy, as in takeover bid.

Bid/Offer Spread: The difference between the market's buying and selling price for unit trusts, stocks, and shares.

Bid Price: The price at which market-makers will buy stocks, shares or unit trusts. It is always lower than the offer price, which is the price at which market-makers will sell to investors.

Bid Valuation: Valuation of a unit trust on a bid value of shares held after allowing for dealing costs. Usually indicates that the trust has more sellers than buyers.

Big Bang: Major restructuring of the Stock Exchange in October 1986. New firms of market makers combined the roles of brokers and jobbers. For the first time foreign companies could own and control companies in the UK financial services sector.

Big Board: Slang term for the New York Stock Exchange.

Billion: Generally understood as a thousand million, originally a US definition, which has now almost entirely superseded the original British definition of a million million.

Bimetallism: An old monetary system based on gold and silver with the level of the official gold price setting the price of silver. Replaced in the nineteenth century by the gold-backed gold standard.

Black Friday: 24 September 1869 - the day when an attempt to corner the gold market led to panic and an economic depression.

Black Knight: See Raider.

Black Monday: 19 October 1987 - the day when stock-markets round the world experienced dramatic falls. 

Black-Scholes Option Pricing Model: Complex computer analysis used to set the premium or cost of a traded option. It takes account of the current price, the exercise price, the volatility of the security, interest rates, dividends, time to expiry and anticipated share growth.

Blue-chip: A share of a top-quality, household-name company.

Boilerhouse or Boilershop: A disreputable firm that sells dubious securities by high-pressure tactics usually by telephone from unregulated financial centres abroad.

Bond: Another name for fixed interest stock, particularly that issued by the government. See Gilts.
Bond Washing: Buying bonds shortly after dividends are paid and selling them shortly before the next payment. This turns the interest which has accrued into a capital gain.

Bonus Issue: Often called a "free" or scrip issue: a bookkeeping transaction which transfers money from a company's reserve to its capital. Existing share prices fall to reflect the greater number of shares issued.

Book: Shares or unit trusts held by market-makers or unit trust managers on their own account, i.e. on which they not their clients takes any profit or loss.

Book Value: The value of an asset shown in the books or accounts of a business.

Bootstrap: A takeover bid for the controlling interest in a company at a certain price followed by a lower offer for the remaining shares.

Bottom Fishers: People who aim to wait for the market to bottom out and then buy shares cheaply, often indiscriminately.

Bottom-up Approach: A method of investment analysis which involves searching for individual securities that the market has failed to put a true valuation on. It is the essence of value investing - finding shares that are "cheap" and waiting for a rise in price. See Top-down Approach.

Bought Deal: American term for an offer for sale of new shares where the securities are first bought by an underwriter who attempts to re-sell them at a marked-up price.

Bourse: French for stock exchange, applied principally to the Paris Stock Exchange but also to international stock and futures exchanges generally.

Box Profits: Profits made by a unit trust manager in buying units back from investors who are selling out of a fund, and then selling them on to new investors at a higher price. The scope for such profits has been almost eliminated by the adoption of forward pricing of unit trusts.

Breakout: Term used in technical analysis to describe a situation where price changes create a new pattern from a rectangle chart pattern or sideways trend. A downside breakout shows a decline while an upside breakout indicates an upward price swing.

Break-up Value: See net asset value.

Bretton Woods Agreement: International trade agreement signed in 1944 at Bretton Woods in the US. It created the IMF and the World Bank to deal with the economic aftermath of war. Now largely concerned with LDCs.

Bridge Finance: Short-term financing provided as part of a takeover or buyout. See Mezzanine Finance.

Brilliant: (l) A diamond with 58 facets; (2) precious coin in exceptional condition.

Britannia: A 22 carat gold coin launched in 1987. There are two kinds of Britannia - a bullion coin for investors, where the price varies with the price of gold on the market; and a proof one for collectors which has a set price, fixed by the Royal Mint.

Broker: A middle man, who organises the buying and selling of financial products to the public - for a commission or brokerage fee.

Bucket Shop: Slang expression to describe brokers dealing in stocks, shares or commodities without being members of a recognised exchange.

Building Society: A mutual institution which acts as a source of loans to house purchasers in the form of a mortgage with funds mainly obtained from private investors' savings.

Bull: The opposite of a bear. The optimist who believes that the market is going to rise, and so buys snares now to benefit from future price rises.

Bull Call Spread: A type of vertical spread, a strategy used by investors in traded options. If a share price is expected to rise investors can buy a call option and simultaneously sell another call with a different exercise price, but an equal expiry date. In this way investors can increase rewards and reduce risks compared with a straight option purchase or sale. See Bear Call Spread.

Bulldog Bond: A fixed interest security issued in sterling by foreign governments and international agencies such as the World Bank.

Bullet: A fixed interest security with a set maturity date.

Bullion: Gold and silver in bulk form, for example in bars, rather than as a manufactured product, such as jewellery.

Bull Market: When the market is optimistic and prices are rising and bulls are in the majority. See Bear Market.

Bund: Fixed interest security issued in euros by a governmental or quasi-governmental body.

Business Expansion Scheme: See BES.

Buy-in: (l) A company takeover by investors who offer a new set of managers. (2) The purchase by a company of its own shares through the stockmarket.

Buy Signal: A term used in technical analysis. It occurs when the movement of a share price, as shown on a chart, forms a specific pattern, e.g. a reverse head and shoulders is taken to be an indication that prices are about to rise.

Call: (l) A demand for money, particularly for installments on partly paid securities. (2) An option to buy.

Call Option: An option giving the holder the right to buy a share at a stipulated price within a specified period.

Cancellation Price: The lowest price at which the management group of a unit trust is allowed by the government to buy back units. Usually lower than the bid price.

Cap and Collar: A maximum upper and a minimum lower interest rate applied to certain loans and mortgages which protects the borrower from wide variations in the market rate.

CAP: The Common Agricultural Policy of the European Union which imposes tariffs to keep many food prices above the free market world price.

Capital: Wealth, or more specifically money, that is used to generate more money. Often the cash that is used to set up and operate a business.

Capital Gain: Profit made by selling an asset. See CGT.

Capital Gains Tax: See CGT.

Capital Transfer Tax: See CTT.

Capital Turnover Ratio: Also known as the Assets Turnover Ratio, this indicates the extent to which the capital of the business is generating sales. It is obtained by dividing the value of sales by average long-term capital employed.

Capitalisation: (l) The total value of a company, based on the current market price of all its issued securities. Also called "market capitalisation". (2) The conversion of a company's reserves into share capital, as in a scrip issue.

Captive Fund: Venture capital fund controlled by a larger group which does not raise funds on its own account.

Carat: Measure of gold purity. 24 carat is the purest.

Carrying Charge: The cost of holding an asset prior to reselling it. May for example include interest, tax, storage costs and insurance.

Cartel: An agreement among companies in a similar field to co-operate for their mutual advantage. May involve price fixing and lead to the exclusion of competitors. In many cases now illegal.

Cash Flow: The measure of the amount of cash coming in and going out. It shows a company's sources of income and how it spends it.

Cash Settlement: Immediate settlement in cash. Contrast rolling settlement.

CAT Standards: Government criteria for benchmark ISAs, and mortgages, relating to Charges, Accessibility, and Terms, e.g. for share ISAs charges may not exceed 1 per cent; minimum investment no more than £500 a year; funds to have at least half in EU listed shares.

CCJ: County Court Judgment for enforcement of a debt, which makes it difficult for you subsequently to borrow money or get a mortgage.

CD: Certificate of deposit. A tradeable document showing that a sum of money, usually large, is being held by a bank or financial institution at a fixed rate of interest.

Central Bank: The banking authority that controls the commercial banks and executes the government's monetary policy. Britain's central bank is the Bank of England.

CFD: A type of derivative where investors enter into a contract to own the difference in the share price of the underlying security without actually owning the share itself. Often done on margin.

CGT: Capital Gains Tax - tax on profits made from the sale of assets, such as shares or a second home. Profits in excess of an annual allowance are added to the seller's income and taxed as income. Up to 1998 gains due to inflation escape taxation through indexation relief. The tax on gains realised after April 2000 is reduced by taper relief.

Chaebol: South Korean industrial conglomerate.

Chaos Theory: A complex mathematical theory that attempts to predict highly random scientific phenomena, such as how tap water splashes in a basin. Used as an alternative to the Efficient Market Hypothesis in an attempt to predict market movements, taking into account the volatility of human emotions.

Chargeable Event: A transaction which gives rise to a capital gains tax liability.

Charge Card: Cards whose accounts must be settled at the end of the month, such as American Express, Diners and Gold Cards. See also credit cards and debit card.

Chartist: A security analyst who believes the plotting of share price and other security price data on charts may indicate future movements in prices.

Chattels Exemption: A tax break which allows a certain value of chattels (usually antiques) to be sold without liability to capital gains tax on the disposals.

Chinese Arbitrage: Buying (or selling) the shares of a company rumoured to be making a takeover bid - as opposed to buying the shares of the target company. Usually a bet that a deal will fall through, benefiting the shares of the would-be acquirer.

Chinese Walls: An imaginary wall between two parts of a financial organisation designed to prevent the exchange of information leading to conflicts of interest.

Churning: Illegal practice whereby a securities dealer excessively and unnecessarily trades shares to generate additional commissions.

City: Refers to the City of London; the square mile that is the heart of Britain's financial community.

City Code: The rules of conduct drawn up by the Stock Exchange to regulate takeovers of quoted companies.

Clearing House: An organisation set up to arrange settlements of money between a number of parties, e.g. banks or stockmarkets, so that only one balance has to be settled between any two parties at the end of each day or trading period.

Client Account: An account held on behalf of clients which is kept separate from the business finances of a company or partnership.

Close Company: A company controlled by up to five persons whether directors or not.

Closed-end Fund: A fund which has a fixed share capital, such as investment trusts, which are companies whose share capital is limited, unlike unit trusts which are open-end funds, i.e. they are open to an unlimited influx of new funds from investors.

Closing Price: The quoted price of a share at the end of a day's trading.

Collateral: A capital asset which a bank or other lender may want signed over to secure their loan before lending money. Typically it may be a house or shareholdings.

COMEX: Commodity Exchange - a market for dealings in commodities. Now part of the New York Mercantile Exchange.

Commission: A means of paying someone, such as an agent, for selling something, often used as an alternative to a fee or fixed payment. The payment is related to the value or number of goods or services sold.

Commodity: Raw material traded in specialist markets. Commodities include foodstuffs, base metals and bullion.

Common Stock: US term for equity security representing ownership and carrying voting rights. It ranks junior to bonds but represents greater potential reward through capital appreciation and increasing rather than fixed dividends. See Ordinary Shares.

Commutation: The right to exchange part of a pension for a lump sum, tax free under current legislation.

Companies House: The register of all limited liability companies is kept here. It gives details of companies' shareholdings, accounts and directors and is open to the public.

Company Doctor: Helps companies in difficulties, usually as non-executive director.

Compensation Fund: Fund set up by a regulatory body to protect investors against a member's fraud or bankruptcy. See Financial Services Compensation Scheme.

Completion: The actual moment when a property changes hands - in the case of houses when the money is handed to the seller and the buyer collects the keys.

Compliance: Adherence to the requirements of the. Financial Services & Markets Act by a company, particularly a financial institution. Overseen by the company's compliance officer.

Composite Rate Tax: Tax abolished in April 1991 which was deducted from the interest paid to all investors in bank and building society accounts, but which could not be reclaimed by non-taxpayers.

Compound Interest: The most common type of interest. It means that interest is paid on any interest already earned in, say, a building society account as well as on the original sum invested. See AER..

COMPS: Contracted-out money purchase scheme. A pension plan independent of S2P.

Concert Party: A group of shareholders pretending to act independently, but actually plotting a takeover.

Consideration: The value of a contract to buy or sell an investment before commission and charges have been added. Also a legal term for a contractual payment in cash or kind.

Consolidated Balance Sheet: A balance sheet which includes information on the financial situation of a company and its subsidiaries.

Consols: Irredeemable government stock issued long ago when coupons were lower.

Constant Ratio Averaging: An investment strategy designed to enable portfolios to be balanced between aggressive and defensive securities. Half of the investments would be in defensive securities, designed to give secure income, while the other half would be more aggressively positioned for capital growth.

Contango: Situation arising on the commodities markets when the spot price is below the futures price. Also known as aforwardation.

Contested Takeover: See Hostile Takeover.

Contract For Difference: See CFD.

Contract Note: The confirmation received when shares are bought or sold - proof of the transaction for tax purposes.

Contracting Out: Arrangement whereby part of an employee's National Insurance Contributions are diverted towards providing an appropriate personal pension from a life assurance or pension company, in exchange for the employee losing entitlement to S2P benefits.

Contrarian Investor: An investor who does the opposite of what the majority in the market appears to be doing -for instance buying a share when everyone else is selling.

Controlling Interest: Normally ownership of more than 50 per cent of a company's shares, and accompanying voting rights. In practice, can be less than 50 per cent in some circumstances.

Convertible: A form of loan stock - a hybrid between a share and a stock or bond. It pays a fixed rate of interest and may be converted into a specified number of shares at a future date.

Convertible Preference Share: A specific kind of preference share which allows conversion of an investment into a certain number of ordinary shares at a fixed price and within a specified period of time.

Conveyancing: The transfer of property from one person to another.

Cooling-off Period: A period of time during which you may change your mind about a purchase - usually applied to life assurance policies.

Coppock Indicator: Index devised by Edwin Coppock using weighted percentage changes in share prices over a one-year period to give leading signals on trend reversal.

Corporation Tax: Tax on company profits. The rate is fixed each year in arrears.

Correction: A short, sharp reversal of a price trend on a stockmarket.

Cost Averaging: Investing an amount of money regularly in the same share or unit trust, and so buying more when the price is low and vice versa. The average price paid over the period is lower than the average share price. Also known as pound cost averaging.

Cost Push: Inflation resulting from a rise in production costs, e.g. costs of raw materials or wages. See Demand Pull.

County Court Judgment: See CCJ.

Coupon: Detachable portion of stock or share which is sent to the issuing house or company as proof of entitlement to interest or dividends. Also the rate of interest on a fixed interest security.

Covenant: A contract to pay another party an agreed sum on a regular basis. Charities can reclaim the basic rate tax paid on their covenant income, and higher rate taxpayers can recover the extra tax they paid.

Cover: (l) The number of times the yield of a security may be paid out of earnings. The average UK company pays out around half of its earnings in dividends. (2) In insurance, the amount the insurer will pay if the event insured against takes place.

Covered Warrant: A type of -warrant issued by a financial institution rather than an individual company as in the case of normal warrants. The warrants are said to be covered because the financial institutions buy or sell the underlying security to cover their exposure.

Covered Writer: An investor who sells traded options of which he owns the underlying securities. See also Uncovered Writer.

Creative Accounting: Ways of artificially inflating a company's profits or balance sheet, for instance taking into profit items which might not normally be included, such as reverse premiums on high-cost property rental agreements or disguising the true extent of a company's borrowed funds.

Credit Card: A means for buying goods and services without immediately paying cash. Holders are charged interest either from the date of the transaction or the statement date. Each account has a credit limit specifying the maximum permitted outstanding balance. See also charge card.

Credit Scoring: Method of judging loan requests often used by banks and other lending institutions. The prospective borrower completes a questionnaire or loan application form, and each answer is weighted by the lender and awarded a certain number of points. A minimum number of points is needed for the application to be approved.

CREST: A computerised share trading system used by the London Stock Exchange.

Crossover Signal: Given when a buy signal is followed by a sell signal or vice versa.

Crowd Psychology: Sometimes referred to as the "madness of crowds", a theory which attempts to explain market trends by analysing human behaviour in relation to investing.

CTT: Capital Transfer Tax, a tax on gifts, abolished in 1986, replaced by inheritance tax.

Cum-dividend: From the Latin "cum" meaning "with". Shares bought cum-dividend mean you have also bought the right to receive the dividend. Cum-rights and cum-scrip apply likewise.

Cumulative Preference Share: A preference share which has the right to receive any unpaid dividend on a cumulative basis as a priority over ordinary share dividend entitlement.

Cumulative Redeemable Preference Share: A redeemable preference share which gives an extra degree of security: if the company misses a dividend payment one year, it is carried forward to the next year and so on until it is eventually paid.

Current Assets: Short-term assets - cash, stock, work-in-progress and money owed. Current assets minus current liabilities gives net current assets. See Fixed Assets.

Current Liabilities: Short term debts. In the case of a company those falling due within one year.

Current Ratio: A ratio used in business which may also be applied to the  management  of personal finances, dividing current assets by current liabilities. Most businesses regard a ratio of two to one as sound - in other words, limiting short-term borrowings to half of short-term assets.

Current Yield: The dividend or interest payment on an investment expressed as a percentage of its current price.

Cyclical Shares: Shares in companies whose profits tend to move in marked cycles, usually determined by the overall prosperity of the economy.

Dawn Raid: Purchase of a significant block of shares in a company through the stock-market, often as soon as the market opens, often the precursor to a full-scale takeover bid.

Dealing: Name given to transactions in stocks, shares, unit trusts, commodities and other financial instruments.

Debenture: A loan raised by a company normally using its assets as collateral for the loan. Sometimes referred to as a "mortgage debenture".

Debit Card: A means of payment which looks like a credit card but authorises immediate payment from a bank account.

Debt to Equity Ratio: The liabilities of a company divided by the equity or share capital.

Decreasing Term Assurance: An assurance policy where the sum assured decreases yearly. Often used as a mortgage protection policy - as the mortgage is paid off the need for assurance diminishes. See Level Term Assurance.

Dedicated Income Investor: An investor whose objective is to generate regular income or compound it by carefully managing risk. See Aggressive Income Investor and Transient Income Investor.

Deep-discount Bonds: Bond issued at a price well below its redemption value. Designed for investors seeking capital gain rather than income.

Deferred Annuity: An annuity on which payments will be started at some point in the future - often chosen as a pension.

Deferred Interest Loan: A type of mortgage which allows you to defer the amount of interest currently due, and to pay it at a later date.

Deficit Financing: Borrowing by a government to fill a gap in income from other sources, such as taxation.

Deflation: Technically, falling prices. Also widely used to describe government policy intended to reduce demand, by tax or interest rate increases for example, which may lead to higher unemployment and recession. See Disinflation..

Deflator: A factor used to adjust measures of economic activity to their real rather than their apparent money value.

Demand Pull: Inflation resulting from increased demand outstripping readily available supply of goods and services. See Cost Push.

Demutualisation: The process of turning a mutual company such as a building society or life assurance company into a public limited company, usually providing one-off windfall profits for existing customers.

Depreciation: The cost of a wasting asset written off against profits over the life of the asset.

Depression: An economic contraction, more severe and longer lasting than a recession.

Derivatives: Financial products such as options or futures derived from other underlying investments such as shares, share indexes, commodities, currencies etc.

Direct Debit: Allowing the bank to take an agreed sum out of your bank account on agreed dates. Useful for paying regular bills.

Direct Tax: A tax levied on capital and sources of income over which the taxpayer has no discretion. See Indirect Tax.

"Dirty Floating" Technique: The deliberate manipulation by governments and central banks of exchange rates which are in theory supposed to be allowed to find their own level.

Discount: The amount by which the selling price is below the market value. See premium. Difference between market value and break-up value.

Discounting: Occurs when a security is issued or traded below its redemption value or, in the case of investment trusts, below net asset value.

Discretionary: Service offered by investment advisers whereby the adviser, such as a stockbroker, is given a free hand to buy and sell securities without the client's approval of individual transactions.

Discretionary Trust: A family trust which allows the trustees to decide how the income and capital in the trust is to be distributed, usually among a specific class of beneficiaries which might be, for example, the relatives of the settlor. Often used as a means of providing income for a surviving spouse while keeping the assets out of his or her estate. See Gift.

Disinflation: Government policy aimed at gradually reducing the rate of inflation.

Distribution: Payment made to the unit holders by a unit trust.

Distributor Status: Approval granted annually by the Inland Revenue to offshore funds which pay out at least 85 per cent of their income. This allows any additional capital gain to be subject to CGT. Failure to achieve distributor status means all income and gains are taxed as income. Income paid from a fund with distributor status is paid gross, so providing a cashflow advantage.

Diversification: The spread of risk by investing in a portfolio of securities each of whose performance is affected by a different set of economic and market conditions.

Dividend: A payment made to shareholders out of a company's profits after tax.

Dividend Cover: See Cover.

Dividend Valuation Model: Method of valuing securities that uses the concept of the present value of a future income stream.

Dividend Warrant: The documentation accompanying the cheque for the dividend on a share. Also gives details of the associated tax credit.

Dividend Yield: The dividend payment of a share divided by the current market price of the share and expressed as a percentage.

Dog: US slang for a share not expected to perform well.

Domicile: A person is domiciled in the country that he or she regards as their natural home; an important factor in determining liability to UK taxes.

Double Bottom: Chart pattern showing two level points at which share prices have bottomed out, indicating a signal to buy. See Double Top.

Double Taxation Relief: Relief from taxation on income or profit earned abroad and already taxed abroad. This depends on the existence of a double taxation treaty between the countries involved.

Double Top: A reversal chart pattern which shows two level points at which share prices have peaked before declining, indicating a signal to sell.

Dow Jones Industrial Average: Measures average share price and the average percentage price change of 30 major US industrial companies. Also known as Dow Jones Industrial 30 Share Index. See also Index.

Dow Jones Transportation Average: Originally known as the Rail Average, one of the two key averages forming the basis of Dow theory. Dow believed railways were especially significant predictors of economic activity since most goods were carried by them.

Dow Theory: Theory developed by Charles Dow in the nineteenth century to predict market movements, based on use of the Dow industrial and rail averages as predictors of future trends.

Downside Breakout: A sharp fall in the price of a share or commodity, where the previous support level becomes the new resistance level. See also Breakout.

Dual Capacity: When a financial institution acts both as market-maker and broker. Before Big Bang, these two functions had to be undertaken by two separate institutions.

Dual Pricing: Pricing a share or unit trust so the buyer at any given time will always pay more than the seller. See single pricing.

Earnings: A company's profits after tax.

Earnings Per Share: Earnings divided by the number of shares issued.

Earnings Yield: A company's earnings divided by the current market value of the company's equity capital, or earnings per share divided by the share price.

EBITDA: Earnings before Interest, Tax, Depreciation and Amortisation. A measure used by prospective takeover bidders to assess the free cash flow of a company.

Efficient Market Hypothesis: Theory that suggests markets instantly adjust to new information. Its "weak" form suggests no relationship between past and future prices; stronger forms hold that all information is incorporated in the price of the share.

EIRIS: Ethical Investment Research Information Services - produces guidelines on companies from an ethical investment point of view.

EIS: Enterprise Investment Scheme - scheme introduced in 1994 allowing taxpayers tax incentives to invest in unquoted trading companies.

Electronic Media: Methods of accessing data on computer disks or via the internet, so that investors can, for example, view share prices live or review historical trends.

Elliott Wave Theory: Theory developed by R. N. Elliott in the 1930s to predict share price movements, based on his belief that market action follows a natural rhythm closely associated with human psychology.

Emoluments: All payments and benefits received in connection with a job.

Employee Buyout: When the employees of a company, rather than its senior management, acquire a controlling interest in it. See MBO.

EMS: European Monetary System. Means of stabilising exchange rates among members of the European Union, prior to the adoption of the euro. See Snake and ERM.

EMU: European Monetary Union, see euro.

Endowment Assurance: A life assurance policy which pays a sum assured on the death of the life assured or at the end of an agreed term, whichever is the earlier. See also With-Profits Assurance.

Endowment Mortgage: A mortgage linked to a life assurance policy. The mortgage holder's monthly payments to the lender cover only the interest on the loan. A separate monthly premium funds a life assurance policy, which is designed to pay off the loan when it matures.

Enterprise Investment Scheme: See EIS.

Enterprise Zone Trusts: Property trusts investing in enterprise zones, areas in which businesses receive special government incentives for a fixed period. Investors in these trusts can write off most of their investment against income tax liabilities.

EPIC Code: Exchange Price Information Code - Code names for companies, which help you to access company data quickly on websites.

Equalisation of Estates: When a husband and wife divide their assets so that they save the maximum amount of tax.

Equity: Technically the money remaining in a company after all obligations have been met. Equity is owned by the ordinary shareholders, so "an equity" is another word for an ordinary share.

Equity Income Trust: A category of unit trust which invests at least 80 per cent of its assets in equities, and which aims to achieve a yield in excess of 110 per cent of the yield of the FTSE All-Share Index.

Equity /Mortgage Ratio: The relationship between the equity invested in property and the loan you have to repay.

ERM: Exchange Rate Mechanism. The process by which most EU countries kept their currencies within a fixed percentage of each other, before adoption of the euro.

Escalating Annuity: An annuity which increases by a fixed percentage at regular intervals.

ESOP: Employee Share Ownership Plan. Scheme designed to encourage direct ownership of shares in employees' own company. Subject to specific conditions, these plans benefit from corporation tax relief. Capital gains tax relief on sales of shares to ESOP trusts, subject to certain rules, is available.

Estate: The total value of a deceased person's assets.

Estate Planning: Strategy to reduce inheritance tax that will eventually have to be paid on assets transferred from a person's estate to beneficiaries after death.

ETF: Exchange Traded Fund. A collective, low cost open-ended investment fund investing in a basket of shares to track a particular index or sector. ETFs do not usually have initial charges unlike unit trusts and investment trusts. Management fees tend to be lower too.

Ethical Investment: Investing only in companies considered to be morally, environmentally and politically acceptable. See also EIRIS.

Euro: Legal currency in EU countries participating in EMU. Euro notes and coins were first issued in January 2002.

Eurobond: A bond, usually denominated in US dollars, that trades internationally outside the US. The term is rarely used now as it is confused with bonds issued in euros.

Eurocurrency: General term for any currency held outside its home jurisdiction. Includes Eurosterling and Euroyen.

Eurodollars: US dollars placed on deposit outside the US national banking system and not subject to US law restricting interest rate levels. Developed due to surplus of US dollars held by other countries as a result of US's persistent balance of payments deficit.

Euromarket: International capital market where Eurodollars are traded.

Euronext: A pan-European stock exchange formed by the merger of the Paris, Brussels and Amsterdam bourses.

European Monetary Union: See EMU.

Euroyen: Bond issued in Europe by non-Japanese companies and institutions denominated in yen. Available to smaller investors, unlike Yankee-yens and Shogun bonds. Yields are often attractive compared with similar Japanese government securities.

Ex: From the Latin "without". Most commonly found in the term "ex-dividend" when referring to shares. This means that these shares are not entitled to the next dividend.

Exceptional Items: Transactions of a one-off nature outside the normal activities of a business which are included in the profit and loss calculations so affecting earnings per share. Current accounting standards require all such items to be identified and quantified. See also extraordinary items.

Exchange Traded Funds: See ETF.

Ex-distribution: Term applied to a unit trust sold without an entitlement to the next dividend.

Ex-dividend: Shares not entitled to the next dividend. See also xd and cum-dividend.

Ex-growth: A security that is not expected to produce significant future earnings growth, or which may fall in value.

Ex-rights: Without entitlement to the rights.

Ex-scrip: Without entitlement to the scrip.

Exchange Control: Government regulations restricting the transfer of capital over- seas. Imposed in the UK at the start of the Second World War and abolished in 1979. Still used in a number of countries.

Exchange Rate: Rate at which different currencies may be exchanged or swapped. See fixed, floating.

Exchange Rate Mechanism: See ERM.

Execution Only: Service offered by investment firms whereby they act only on the client's instructions and do not give advice.

Executor: A person appointed to ensure that the terms of a will are carried out.

Exempt Income: Investment income on which tax is not payable - examples are National Savings & Investments Certificates and Individual Savings Accounts.

Exempt Supplies: goods and services (like land, insurance, banking, postal services, private health and education, burials and cremation) not liable to VAT. These businesses cannot reclaim VAT they have paid.

Exempt Unit Trust: A tax-exempt category of unit trust which is open only to investment from some pension funds or charities.

Exercise Notice: A notice that the buyer of a traded option wishes to exercise it - to buy or sell the underlying security.

Exercise Price: The price at which an option may be exercised.

Extraordinary Items: Transactions of a one-off nature which companies could formerly choose to show as an addition to or (more usually) a deduction from after-tax profits, so not affecting declared pre-tax profits or earnings per share. Under current accounting standards now obsolete, as all such items are now required to be identified as exceptional items.

Failure Swing: A technical analysis term indicating that a price trend is beginning to lose momentum. Usually a sign of an imminent price reversal.

Fed: Federal Reserve Bank -the US national bank clearing system - in effect its central bank. Sets US interest rates.

FIFO: First In, First Out - an accounting method that assumes inventory bought first will be sold first and which allocates costs on this basis. See LIFO.

Final: The dividend declared after a company's year end results. See also Interim.

Final Salary Scheme: A pension scheme aiming to give employees a retirement income equal to a specific proportion of their final salary immediately before retirement. See Accrual Rate.

Finance House: A financial institution which lends money, often for hire purchase transactions, usually at rates of interest higher than those of clearing banks.

Financial Futures: Contracts to buy and sell foreign currency at a specific rate of exchange at a future time.

Financial Reporting Standards: See FRS.

Financial Services Act 1986: First comprehensive UK legislation specifically designed to protect investors from unscrupulous financial advisers and practices.

Financial Services & Markets Act 2000: Legislation that established the FSA as the single SRO in the UK and the Financial Services Compensation Scheme in 2001. Supersedes the Financial Services Act 1986.

Financial Services Compensation Scheme: Covers against fraud or insolvency of FSA authorised firms. Offers some protection for deposits, investments and insurance.

Financial Services Authority: See FSA.

Financial Year: Ends with the actual reporting date for a company's accounts (often 31 December or March), not the same as the fiscal year.

Fine: Total weight of gold or silver in an object such as a coin.

Fiscal Policy: Government measures concerning taxation and expenditure.

Fiscal Year: For UK tax purposes the year runs from 6 April to the following 5 April.

Fixed Assets: Long-term assets - such as buildings and machinery which are used by the business and which are not easily converted into cash. See Current Assets.

Fixed Deposit: A deposit which earns a rate of interest above the norm because it cannot be withdrawn for a specified period.

Fixed Exchange Rates: Pegging a country's currency against some other yardstick (such as gold) or another currency (such as the US dollar).

Fixed Interest Loan: A type of loan or mortgage which keeps the interest rate fixed for a specified number of years.

Fixed Interest Stock: A security with a fixed rate of interest, usually with a predetermined redemption date.

Fixed Liabilities: Long-term debts, usually those of a company. See Current Liabilities.

Fixed Price Offer: An offer for the sale of new issues at a fixed price. All applicants for the shares are considered at the stated price.

Flag: A chart pattern marking a pause within an overall trend, where the trendlines are parallel.

Flat Yield: The rate of return on an investment, ignoring any capital gain or loss. See also Running Yield.

Floating Exchange Rates: Allowing the foreign exchange markets to determine a currency's level against other currencies. In practice usually accompanied by some attempt by the country's government to "manage" the float within certain limits. See Dirty Floating.

Floating Rate Note: Loan stock with a variable rate of interest.

Flotation: An offering of a company's shares to the public.

Footsie: See FTSE 100 Index.

Foreign Bonds: See International Bonds.

Foreign Currency Mortgage: A mortgage granted in and repaid in a foreign currency.

Foreign Exchange: Currency or bonds issued by another country.

FOREX: Foreign Exchange Market - a market for dealings in foreign currencies and establishing rates between them.

Forwardation: A situation in a commodities market where the spot price is below the price of the. futures contract. Also known as a contango.

Forward Market: A market where goods or currencies are sold for delivery at a future date - so avoiding the risk of prices or exchange rates fluctuating between the time of agreeing a deal and the time when you make payment. See also Spot Market.

Forward Pricing: Pricing of unit trusts on the basis of the next valuation to be established after an investor buys or sells. See Historic Pricing.

FRA: Forward Rate Agreement - a hedge against rising interest rates similar to commodities futures contracts. Typically made between a company and a bank.

Free of Commission: Term used by investment dealers who make their profit by quoting a wider spread between the bid and offer prices. Not free at all.

Friendly Society: An organisation similar to a mutual insurance company. Originally to support members during periods of sickness, unemployment etc, continued survival is due largely to tax concessions allowing them to offer tax-efficient life assur- ance policies, subject to low ceilings on premiums.

Front End Load: Sales commission and other set-up costs for a life assurance policy or unit trust. The bulk of life assurance payments in the first year or two go towards expenses like commission, rather than building up capital. Same as initial charge.

FRS: Financial Reporting Standards - mandatory rules accountants must follow in drawing up a company's annual report and accounts.

FSA: Financial Services Authority. The single SRO for regulating financial services in the UK.

FSAVC: Free Standing Additional Voluntary Contributions paid into a pension or insurance company separate from an employer's pension scheme. They can be used to contract out of S2P if the company scheme is contracted in. See also AVC and Appropriate Personal Pension.

FT 30 Index: An index of 30 shares first produced in 1935, calculated on an hourly basis. The longest running continuous series of a cross-section of the UK stockmarket.

FTSE Good Index: A series of indices consisting of companies meeting an ethical benchmark set by FTSE and EIRIS.

FTSE 100 Index: "Footsie", the Financial Times-Stock Exchange 100 Index, launched in 1984. Calculated in real time throughout the trading day, the most widely quoted barometer of the performance of the UK market. See FT 30 Index.

FTSE 350 Index: An index of the prices of the 350 UK quoted companies with the highest market capitalisation.

FTSE All-Share Index: A comprehensive index, calcu- lated daily. It is the professional investor's yardstick of stockmarket performance. It covers over 700 shares and over 98 per cent of market capitalisation. Note that it can be more sluggish to react than the FTSE 100 Index, since some of the shares included are less active than the market leaders.

FTSE All-World Index: An index produced by FTSE to cover international stock-markets.

FTSE Fledgling Index: An index of companies which are too small in terms of market capitalisation to qualify for the FTSE All-Share Index.

FTSE Mid 250 Index: An index of the prices of the largest 250 companies outside the FTSE 100.

FTSE SmallCap Index: An index of the companies in the FTSE All-Share Index but too small for the FTSE 350 Index. An alternative version includes investment trusts.

Fuel Benefit: The notional extra income on which employees must pay income tax at their highest rate if their employer provides any petrol for the private use of a company car.

Fully Diluted Earnings: Earnings per share figure assuming that all stock is converted and that current earnings are spread over the total number of shares.

Fund of Funds: Unit trusts which may invest only in other authorised unit trust schemes.

Fundamental analysis: Analytical approach to securities valuation that stresses the importance of underlying factors, such as a company's relative strength, to determine and predict share prices.

Funding: Paying off short-term debt with capital raised from the sale of long-term securities or by taking out a long-term loan.

FURBS: Funded Unapproved Retirement Benefit Scheme -not a substitute for a pension scheme but an additional means by which an employer can remunerate a highly taxed employee tax-efficiently.

Futures: Contracts to buy and sell commodities, or financial derivatives at specific prices at future times.

G-7: The world's major Western trading nations, comprising the US, Germany, Japan, Britain, France, Canada and Italy. Since the collapse of communism now more often the G-8, including Russia.

Gain-lock: A predetermined price above the buying price, but below the current price, at which a shareholder decides to sell a share to preserve the profit.

Gann Theory: Investment strategy developed by W D Gann, a successful twentieth century Wall Street trader, using continuous detailed analysis of the rate of change of stockmarket prices and applying strict trading rules, especially stop-loss levels.

Gazumping: Agreeing to sell a house at a certain price and then accepting a higher offer.

GDP: Gross Domestic Product - the total value of finished goods and services produced within an economy over a specific period, normally one year.

Gearing: Technically the ratio between a company's borrowed capital and its shareholders' capital. Usually City jargon for borrowing.

Gift: An asset which is passed on to a beneficiary, usually in the form of securities or property. There are two categories of gift - a. potentially exempt transfer which is exempt from inheritance tax provided the donor lives for another seven years. Alternatively, inheritance tax may be payable when a gift is made - for example if assets are transferred to a discretionary trust.

Gilts: Fixed interest government stocks. See stripping, and Bank of England.

Glamour Shares: Shares of fashionable companies.

GNP: Gross National Product - GDP plus net property income and profits from abroad.

Global Custody: International settlement and asset security.

Gold Card: A prestige charge card available from most major high street banks and building societies. Gold cards usually offer an unsecured overdraft facility at favourable rates of interest. Most issuers require applicants to prove a minimum annual income. Out- standing balances on the card account have to be repaid in full each month, unlike a credit card. Platinum cards are also available, requiring an even higher minimum annual income to qualify.

Gold/Silver Ratio: The relationship between the price of gold and the price of silver. The theory is that assuming the ratio is fairly stable over the long term, then, when gold increases in price, silver can be expected to follow.

Gold Standard: The use of gold as a monetary standard. Participating countries agreed to convert their currencies freely into gold through their central banks. Fell into disuse in the 1930s. See also Bimetallism.

Golden Handcuffs: Financial incentive to a company's key personnel to prevent them leaving.

Golden Handshake: Payment made to an employee on leaving a company.

Golden Hello: Financial incentive to tempt potential employees to join a new company.

Golden Parachute: An agreement in the employment contract of a senior manager that he or she will receive a sum of money if the company is taken over and he or she is no longer needed.

Golden Share: A share with additional, often specific, voting rights. Used by the UK government to prevent foreign takeovers of newly privatised state-owned companies.

Goodwill: In accounting, the amount by which the purchase price exceeds the book value of a company. It may also refer to intangible factors such as reputation.

Greenmail: Money paid by a target company to discourage a raider from acquisition. A company buys a stake acquired by a potentially hostile raider at a higher than market price.

Grey Knight: A company that makes a counter-bid which is not welcomed either by the target company, as in the case of a -white knight, or by the other bidding company, because its true purpose is not clear.

Grey Market: Dealing in shares before they have been issued and before flotation.

Gross: Before deductions, such as tax. The opposite of net.

Gross Domestic Product: See GDP.

Gross National Product: See GNP.

Gross Yield: The return on an investment without deduction of tax. See also Redemption Yield.

Grossing Up: Converting a net or after tax yield into an equivalent pre-tax yield for comparison purposes.

Ground Rent: Payment for the right to build on or occupy an area of land.

Growth Stock: Shares of a company expected to grow faster than average over a period of years, usually because of an above-average rate of growth in earnings per share.

GRY: Gross Redemption Yield. See Redemption Yield.

Guaranteed Income Bond: Single premium insurance bond that guarantees the repayment of a capital sum at a future date.

Guaranteed Minimum Pension: When a company pension scheme is contracted out of S2P it must replace what the employee would have received under S2P with at least an equivalent amount.

Half-way Hesitation: A short-term chart pattern formed during a fast-moving trend, usually lasting no longer than a few weeks. Examples are flags and pennants.

Hammering: Expulsion of a Member of the Stock Exchange because he or she is unable to meet commitments.

Hard Landing: A term used by economists to describe a significant economic contraction following government measures to reduce demand. See also Soft Landing.

Head and Shoulders: A reversal chart pattern, made up of a left shoulder, head and right shoulder. When the neckline is penetrated prices are expected to fall.

Hedge: Protection of future profits by various measures such as options or futures.

High Coupon: A high rate of interest, as applied to a fixed interest security, particularly gilts.

Higher Rate Tax: Rate of tax paid where income or capital gains or the two together are above a certain level.

Historic Pricing: Pricing of unit trusts on the basis of the latest valuation established before an investor buys or sells. Now abandoned by most unit trust managers in favour of forward pricing.

Holding Company: A parent company which holds more than half of the shares of its subsidiaries and controls the composition of their boards.

Hold-over Relief: Allows CGT to be deferred, for instance if you and the recipient of a gift elect that the recipient pays the tax when the asset is eventually sold, instead of you paying the tax at the time of the gift. Also applied to share-based takeovers or company reorganisations.

Home Equity Loan: A loan based on a householder's equity in his house - i.e. the proportion of its value which is not mortgaged.

Hostile Takeover: Also known as a contested takeover, an attempt by a raider to acquire control of an unwilling target company.

House Price/Income Ratio: The price of an average house divided by the average individual annual income. Historically nearer 3 than 5. More than 4 has historically signalled an overpriced market.

Hypothecation: (l) Pledging of property as security for a debt without giving up the use of it. (2) Earmarking of specific tax revenues to specific areas of expenditure.

IFA: See Independent Financial Adviser.

IHT: Inheritance tax, payable on the transfer of wealth. Usually incurred when an inheritance is received, but also payable on some lifetime gifts.

IMA: Investment Management Association. Formed in 2002 following the merger of AUTIF and the FMA, which represented fund managers. Responsible for promoting unit trusts and other investment fund sales, so not impartial.

IMF: International Monetary Fund - lends to countries unable to raise money on the world's commercial markets, if they adopt policies which it believes will encourage the growth of international trade. See also Bretton Woods Agreement.

Impact Date: Date on which a new issue is brought to the stockmarket.

Income: Money received in the form of wages, profits, interest, dividends, grants or benefits.

Income Investor: An investor looking for predictable income rather than capital gain.

Income Statement: See Profit and Loss Account.

Income Tax: Tax on income whether from employment, or from investments in the form of interest or dividends.

Indemnity: Agreement to cover a loss which would otherwise be borne by another party.

Independent Financial Adviser: An adviser obliged to choose the best products for an individual client's financial and investment needs. See also Tied Agent.

Independent Taxation: The taxation of husbands and wives as separate individuals introduced in April 1990. They are both entitled to a personal allowance. Wives are taxed on their own investment income and have a capital gains tax annual exemption. Before the introduction of independent taxation, a wife's investment income was added to her husband's income and taxed as if it were his.

Index: A statistical means of measuring the change in a set of data from one period to another. The various stock-market indices measure the average performance of particular sectors. See FTSE All-Share Index and adjacent entries; also Dow Jones and Nikkei Index.

Index Fund: A unit trust designed to perform in line with a selected general stock-market index. Also known as a tracker fund.

Index Futures: Financial futures based on a stockmarket index.

Indexation Relief: A deduction from capital gains to exclude from the tax any increase in value of an investment which resulted from inflation between purchase and April 1998 (as measured by the RPI). If the increased value of the investment is less than inflation during that period, it escapes tax. Superseded by taper relief.

Index-linked: When a security is index-linked its value increases in line with the retail price index. This is a way of protecting the value of investments from inflation.

Indirect Tax: A tax which you in effect choose whether to pay to the government, since it is levied on certain items you buy, or on transactions you undertake, such as property purchase. Contrast direct taxes like income tax over which you have no discretion if you have any income.

Individual Savings Account: See ISA..

Inflation: Price increases in an economy usually measured over the past 12 months. See also RPI.

Inheritance Tax: See IHT.

Initial Charge: The up-front cost of buying investments such as unit trusts to cover administration and other expenses. Reduces the amount actually invested. Same as front end load.

Insider: Anyone who has special knowledge not available to the public, which may affect the price of shares. Typically a company director, executive or supplier. See Insider Dealing.

Insider Dealing: Using confidential information from an inside source to make money dealing in a company's shares: a criminal offence since 1980.

Institutions: Term covering pension funds, banks, insurance companies, building societies, unit trusts and other major fund-holders.

Intangible Assets: Assets of a company that have no physical existence but which nevertheless may be extremely valuable. Examples are trademarks, patents, copyrights, goodwill or brand names.

Inter-bank Rate: Wholesale cost of money - the rate at which major banks lend to each other. See also LIBOR.

Interest: A charge for the use of credit or borrowed money, normally expressed as a percentage per time unit of the sum borrowed or used. Similarly, a sum paid to an investor in, for example, a building society or most National Savings & Investments products.

Interest in Possession Trust: Formerly known as the marriage settlement, a family trust which gives a child about to be married the right to the income of the settlement for life, with the children of the marriage becoming entitled to the capital on this parent's death.

Interest Rate Swap: Deals whereby borrowers - usually major institutions or large corporations - convert floating rate debt to fixed rate debt and vice versa. There is no exchange of the underlying debt. See Plain Vanilla Swap.

Interim: Occurring during a company's financial year rather than at its end. Interim results are often accompanied by interim dividends, whereas the year end accounts may give rise to final dividends.

Intermediary: Term applied to wide range of financial advisers and salesmen, including insurance salesmen.

Internal Rate of Return: See IRR.

International Bonds: Fixed-interest bonds whose price varies with interest rates and with the credit-standing of the countries who issue them. They are issued by foreign governments and their risk element varies considerably. Also known as foreign bonds.

International Monetary Fund: See IMF.

Intestate: To have died without drawing up a will.

In-the-money: Used to describe a traded option which has an exercise price below the current price of the underlying security (if it is a call option) or an exercise price above the current price of the underlying security (if it is a put option).

Intrinsic Value: Applied to traded options - for example, when the exercise price of a call option is below the current price of the underlying security, the option has intrinsic value or is "in-the-money". Also used to assess a share's worth according to its earnings prospects in comparison with its actual price.

Investment Bonds: An insurance policy linked to a type of unit trust investment.

Investment Management Association: See IMA.

Investment Trust: A company which invests in other companies or financial instruments. Unlike a unit trust, it is not a true trust, but a closed-end fund, and may use gearing.

Invisible Earnings: A country's earnings from the selling abroad of services rather than goods. Includes earnings from banking, insurance, tourism and foreign investments.

IPO: Initial public offering -US term for a new issue.

IRR: Internal rate of return: accountant's measure for assessing the desired return on an investment.

Irredeemables: See Undated Stocks.

ISA: Individual Savings Account - allows tax-free savings up to a specified level. See CAT Standards.

Island Reversal: Technical analysis term describing a situation where prices open lower the day after a new high has been scored, and never rally strongly enough even to reach the previous day's low. If a similar gap occurs two days in succession an island is formed. See Key Reversal.

ISMA: International Securities Market Association. A trade association recognised by the FSA as an SRO for regulating the activities of companies trading in international bond markets and other securities outside the UK. Formerly AIBD.

Issued Capital: The money that investors have put directly into a company in return for ownership of shares.

Issuing House: A company, usually a merchant bank, that oversees the launching of a new issue of shares.

Jobber: Formerly, a wholesaler of shares. Since Big Bang, market-makers have absorbed the jobber's function.

Joint Stock Company: Rarely used term for a company whose profits are distributed in proportion to each shareholder's original investment.

Junior Debt: Loans which rank after senior debt if a company declares bankruptcy.

Junk Bonds: Loan stocks (usually issued in the US) much used in dodgy takeovers and MBO's. Though often coming from essentially reputable companies, they can become hard to sell owing to high risk and low credit rating.

Key Reversal: Technical analysis term describing an uptrend on a day following one when a new high has been scored and the price opens even higher, but then falls back and closes below the previous day's low. See Island Reversal.

Keynesian Economics: Economic theory based on the ideas of J M Keynes, concerned, among other things, with the control of the level of demand through fiscal policy, and its effects on the level of employment.

Killer Bee: Adviser hired by a company to fight off a takeover bid.

Kiwi: New Zealand dollar (slang).

Kiwi Bond: A Eurobond issued by corporations and governments in New Zealand.

Know Your Client: Legal obligation on financial salespeople (such as IFAs) to record all aspects of a client's personal financial situation and to ensure that all advice takes this into account. See Best Advice.

Kondratieff Theory: Also known as the Long Wave Theory, this was developed by Nikolai Kondratieff, a Soviet economist, in the 1920s. He identified long cycles governing all economic activity. This theory has been used to predict share price movements, from the premise that the cycles are related to the bunching of major innovations - for example the industrial revolution, railway development and electronics.

Krugerrand: South African gold bullion coin, one of the commonest ways of owning gold directly. Available in denominations of one ounce or less.

Lady Macbeth Strategy: A tactic used by a company which at first appears to seek to rescue another threatened by a hostile takeover - a White Knight - but then joins forces with the original bidder.

LAPR: Life assurance premium relief. Tax relief still available on premiums paid into a life assurance policy begun before April 1984.

Last Trading Day: Refers to the last day on which commodities are traded for delivery in a particular month.
Laundering: The "cleaning" of illegal funds, such as drug profits, through investment in legitimate business.

LBO: Leveraged Buyout. A takeover from within a company in which existing shares are exchanged for high interest stock or junk bonds. The resulting gearing is expected to be covered by profits and/ or the sale of parts of the company.

LCH: The London Clearing House - the clearing corporation which regulates the buying and selling of traded options and futures.

LDC: Less Developed Country - Third World country often dependent on loans from the West.

Leading Indicators: Statistics which are supposed to predict changes in the economy.

Lease: A contract by which the owner of an asset or property allows it to be used by someone else, usually for a set period, normally in return for regular payment. Often used for cars and office equipment as well as land and buildings.

Legacy: Money or property that is bequeathed in a -will.

Legal Tender: Notes and coins universally acceptable throughout the realm.

Lender of Last Resort: Phrase applied to a central bank when acting to provide liquidity for financial institutions in a period of severe crisis.

Letter of Indemnity: If a share certificate is lost, a letter of indemnity must be sent to the registrar of the company, accepting liability to bear any loss the company might suffer as a result of issuing a replacement certificate.

Level Term Assurance: An assurance policy where the sum assured remains constant throughout the life of the policy. See Decreasing Term Assurance.

Leverage: See Gearing.

Leveraged Buyout: See LBO.

Liabilities: Debts of an individual or a company. See also Current Liabilities.

LIBOR: London Inter Bank Offered Rate - cost of wholesale money in the London market.

Life Assurance: Insurance that pays out on the death of the policyholder. Some policies mix investment plans and insurance cover, because they will also pay out if the policy-holder survives to a predetermined date. See endowment and with-prqfits.

LIFFE: The London International Financial Futures and Options Exchange - deals in futures and traded options. Now part of Euronext.

LIFO: Last In, First Out - an accounting method that assumes inventories or stocks bought most recently are sold first. See FIFO.

Limit Order: An order to a stockbroker specifying a price limit for a deal.

Limit (Up or Down): The amount that any given price on a market or exchange is allowed to move during a set period, such as a day. Limit up is the highest and limit down the lowest permitted price for the period.

Limited Liability Company: Company whose shareholders' maximum loss if the company were to fail is limited to their original share capital invested, unless they are guilty of wrongful trading.

Line of Shares: A large holding of shares in a company.

Liquidation: The conversion of assets into cash. Used specifically to refer to the conclusion of a company or business concern's affairs when it stops trading.

Liquidator: A person who oversees the winding-up of a company.

Liquidity: The ease with which an asset can be converted into cash.

Listed Company: A company whose shares are registered on a recognised stock exchange.

Listing: Acceptance of a security for trading on a recognised stock exchange. For a listing on the London Stock Exchange, companies have to satisfy specific listing requirements.

Listing Agreement: Undertaking signed by companies obtaining a listing on the Stock Exchange to abide by its rules and regulations.

Lloyd's: The corporation of Lloyd's, the world's largest insurance market. Formerly an association of wealthy individuals known as Names, since 1993 open to investment by limited liability companies which now account for nearly all of Lloyd's underwriting capacity.

LME: The London Metal Exchange, which is unique to the UK and deals in zinc, lead, tin, aluminium, copper and nickel.

Load: Sales commission cost, as in unit trusts. A front-end load is charged off the top at the outset while a back-end load is charged when the investment is sold. A trailing load or commission may be paid throughout the term of the investment as an incentive to the salesperson to ensure that the client does not switch to another investment.

Loan Stock: A security paying a fixed rate of interest which returns capital at the end of a stipulated period of time. Secured by the company's assets.

Loanback: Borrowing back part of the money invested in a pension plan or insurance policy.

London Clearing House: See LCH.

London Listing: Admission of a security to the Official List of securities which are dealt in on the  London Stock Exchange.

London Metal Exchange: See LME.

Long: (l) Owning a share or buying a future in anticipation that its value will increase. See also Short-seller. (2) A gilt with a maturity date more than 15 years in the future.

Long Wave Theory: See Kondratieff Theory.

Loss Adjuster: An independent insurance expert who may be called in by an insurance company to calculate the value of a claim.

Low Coupon: A low rate of interest paid by a fixed-rate security, such as gilts, issued at a price well under par, attractive to higher rate taxpayers because of the tax-free capital gain on maturity.

Lower Rate Tax: The rate of tax paid on the first band of income which exceeds the personal allowance.

Macroeconomics: The study of factors affecting an economy as a whole, e.g. prices, the level of employment and national income; the balance of payments; economic growth and the effect government policy has on these.

Management Buyout: See MBO.

Maple Leaf: A Canadian gold bullion coin.

Margin: The smallest deposit allowable on the purchase of securities, futures or options, when the purchase is to be funded by a loan.

Margin Call: A request for a margin payment to be topped up as a result of an adverse price movement. Same as variation margin.

Margin of Safety: Refers to shares which can be bought for less than their breakup value - a conservative approach to investment favoured by Benjamin Graham.

Marginal Tax Rate: The highest tax rate an individual pays.

Marketability: The ease and speed with which something can be sold.

Market capitalisation: See capitalisation.

Market-maker: A dealer who will quote both a buying and a selling price for stocks and shares. A wholesaler of shares.

Matched Bargain: Shares which may only be traded when the broker already knows a buyer exists for the shares being offered for sale, or vice versa.

MATIF: Marche a Terme des Instruments Financiers - the French financial futures market. Part of Euronext.

Maturity: When a time- sensitive investment comes of age, e.g. a pension fund on retirement.

MBO: Management Buyout -when the senior management of a company, usually with institutional funding, take control of the company by buying its shares. See LBO, Employee Buyout and Buy-in.

Medium: A gilt which is due to be redeemed in five to 15 years' time.

Medium-term Capital: Funds raised, e.g. by a company, for repayment in the medium term, usually five years.

Merchant Bank: Financial institution offering a wide variety of services including advising companies on mergers and takeovers, raising capital for industry and dealing in bullion and foreign exchange.

Merger: The union of two or more companies. Often wrongly applied to a takeover where one company purchases another.

Mezzanine Finance: High risk, unsecured, often short-term finance sought by a company which has been supported by venture capital and is on its way to a stock-market quotation. May carry an equity "kicker" to give a lender a chance to participate in the equity of a company.

Microeconomics: The study of small economic units such as an industrial sector, or an individual company. See Macroeconomics.

Middle Price: Average of bid and offer prices, as quoted in the press.

Minimum Lending Rate: See Bank Rate.

Minorities: Shareholders in the subsidiary of a company who hold a minority interest.

Minority Interest: A holding of shares in a company in which the controlling interest, (the majority of the equity shares) is held by another company or individual.

MIRAS: Mortgage Interest Relief At Source - a system of limited tax relief on the interest payments of a mortgage, which was gradually eroded during the 1990s and finally ended in April 2000.

MLR: Minimum Lending Rate - see Bank Rate.

Momentum Indicator: A method of monitoring price trends, used in stockmarket indices, by measuring the momentum or rate of change in share prices - taking a recent price and comparing it with the price some time ago. Trends often lose speed in their final phases, just before a decline, so a momentum indicator can give leading signals on price trend reversals.

Monetarism: Macroeconomic theory favouring supply-side economics and concerned with the control of the money supply and inflation and their relationship to consumer and industrial demand.

Monetary Policy: Government measures concerning prices and credit, especially interest rates.

Money: Anything acceptable as a means of payment or settlement of debts. Superseded barter, used in primitive societies, in which goods and services were exchanged for one another.

Money Market: The market for short-term, safe, highly liquid assets. Dominated by the banks.

Money Market Fund: A pooled investment allowing individual depositors to gain the advantage of wholesale money market interest rates for sterling and other currencies. The fund aims to pay higher interest rates to investors than they could obtain individually. Often run as a roll-up fund.

Money Purchase Scheme: A pension scheme in which the proceeds depend entirely on the performance of the underlying investments, rather than on salary as in final salary schemes.

Money Supply: Generally, the volume of currency in circulation plus bank deposits. Economists use more specific definitions to refer to particular aspects of the money supply, and call them M0, Ml etc.

Monkey: Slang for £500.

Monopolies: Companies in restraint of trade or about to contravene the Competition Act 1998 can be referred to the Competition Commission whose powers have been increased in line with the tougher stance implemented in Europe. It may order companies to be broken into competing parts or forbid takeovers.

Mortgage: A form of borrowing in which land, property or other assets are used as security for the loan.

Mortgage Protection Policy: A life assurance policy that ensures a mortgage is paid off in the event of sudden death. There is also a range of policies that protect the mortgage-holder in the event of sickness, accidents and unemployment.

Mortgage Rate: The interest a bank or building society will charge on a mortgage loan. It varies according to the lender and the type of mortgage.

Moving Average: A statistical method used to smooth a set of data, especially to eliminate seasonal fluctuations from a time series.

Multiple Applications: Appli cations for shares in a new issue by one person using a variety of names, illegally attempting to obtain more shares than would otherwise be allotted to one individual: an imprisonable offence.

Mutual Company: A company without shareholders. In mutual life assurance companies profits go to policyholders. Other mutual companies may distribute profits to their executives and employees.

Mutual Fund: American term for pooled investments like unit trusts and investment trusts.

Naked Writer: See Uncovered Writer.

Name: An individual (noncorporate) member of Lloyd's, who is entitled to any profits from policies written against the security of his or her personal assets in exchange for accepting unlimited personal liability for any losses.

NASDAQ: National Association of Securities Dealers Automated Quotations System - a computerised system giving the prices for about 4,000 US over-the-counter stocks.

National Insurance Contributions (NIC): The tax paid by employers and their employees to qualify for State benefits such as the State pension, jobseeker's allowance and incapacity benefit. It varies according to earnings.

National Savings & Investments: A range of government-run savings schemes available to the public. They are used to raise revenue for the government. The best known are National Savings & Investments Certificates which pay a fixed amount of interest over two or five years and are free from tax.

Near Money: An asset similar to money, not immediately acceptable as a means of payment but which can be readily converted into one, e.g. money at call or on short notice.

Neckline: Part of a head and shoulders chart pattern, referring to an almost horizontal line joining the lower points.

Net: After some deduction -such as tax - has been made; the opposite of gross.

Net Assets: Money available to ordinary shareholders were their company to be wound up. See Net Worth.

Net Asset Value: Net assets expressed as amount per share.

Net Current Assets: The current assets of a company less liabilities falling due within one year. Also known as -working capital.

Net Profit: Profit after paying taxes, interest, extraordinary items and other obligations.

Net Relevant Earnings: Term used in assessment of tax on income from self- or non-pensionable employment. It refers to earned income, after allowable business expenses or capital allowances have been deducted, but before the deduction of personal allowances.

Net Worth: Owners' equity -the difference between assets and liabilities, known to accountants as the "fundamental equation of accounting".

Net Yield: The return on an investment after tax has been deducted.

New Issue: An issue of shares on the Stock Exchange for the first time. The same as a flotation.

NIC: (l) Newly industrialising country, one which is between a "developing" country and an "advanced" one, such as South Korea. (2) The abbreviation which is often used for National Insurance Contributions.

Nikkei Index: A Japanese stockmarket index representing selected top companies.

Nil Paid: Rights to shares not yet paid for. See also Partly Paid.

NMS: See Normal Market Size.

No-load Funds: Unit trusts in which no initial charge is made to investors. Annual charges may be higher than normal to compensate.

Nominal Interest Rate: The stated rate, not the real interest rate adjusted for inflation, nor the yield.

Nominal Value: Face ox par value of stock or share - it bears no relation to the actual market price.

Nominee: Person or company acting on behalf of another, often as registered owner, particularly of shares to conceal the true or beneficial owner.

Normal Market Size: Average size of dealings in a share over the previous year. Expressed in a number of shares, not value traded.

NPV: No par value. Shares of a company which carry no nominal value.

Numismatic Coins: Coins, struck before 1804, that sell at a premium to their face value due to their beauty or rarity. See Semi-Numismatic Coins.

Odd Lot: Shares traded in units of less than 100 or some other irregular figure.

OEIC (Open-Ended Investment Companies): An alternative to unit trusts, but with a legal structure more similar to an investment trust.

OFEX: a trading facility for unquoted shares.

Off-Balance-Sheet Accounting: See Creative Accounting.

Offer Document: Sent to shareholders in a company which is the subject of a takeover bid, by the bidder.

Offer for Sale: Invitation to the public to buy new shares, usually made by the company's sponsor.

Offer Price: The price at which a security is offered for sale. See bid price.

Offer to Bid: Compares the original purchase cost or offer price - usually of a unit trust with its bid price, the price you receive if you sell.

Offer to Offer: Compares the original purchase cost or offer price - usually of a unit trust    with its current offer price.

Official Dealing Rate: See Bank Rate.

Official List: The Stock Exchange Daily Official List gives information on prices, dividends and so on for every listed security including AIM shares.

Offshore Fund: A pooled fund based outside UK jurisdiction. If it does not meet UK regulatory standards, it may not be marketed in the UK. All investment income is paid at a gross rate, not taxed at source.

Oligopoly: Market controlled by a few large companies competing for domination.

Open-end Fund: A fund, e.g. a unit trust or OEIC, which has no limit on the number of units it can issue. Contrast closed-end investment trusts.

Open Interest: Outstanding futures contracts which are not covered at the end of a day's trading. This is an indicator of how liquid a market is.

Open Market Option: The option to switch the fund built up in a personal pension from the company which managed the pension to a different company to obtain a better annuity rate on retirement.

Open Offer: Similar to a rights issue except if a shareholder does not take up the new shares on offer, the shareholder is not able to sell that entitlement in the market.

Open Outcry: Communication between dealers in a market (e.g. commodities and futures) consisting of shouts and signs, leading to prices being established. This system has largely been replaced by electronic dealing.

Option: The right to buy or sell a share at a stipulated price within a certain period. See also Traded Option and Traditional Option.

Order: Legally binding instruction from an investor to a broker.

Ordinary Residence: For the purposes of taxation an individual may be ordinarily resident in the UK although he or she is not physically resident in a particular tax year. The term "ordinary residence" is broadly equivalent to habitual residence. If an individual is resident in the UK year after year he or she is ordinarily resident here and liable for UK tax.

Ordinary Share: A share representing equity in the company and an entitlement to a share in the profits through dividends.

OTC (Over-The-Counter) Market: Now extinct in the UK following a number of scandals, this consisted of dealers who bought and sold often dubious shares in which they themselves made the market.

OTC (Over-The-Counter) Share: A security not listed on a major stock exchange.

Out-of-the-money Option: A call option which has an exercise price above the market price of its underlying security or below the market price if it's a put option.

Overbought: A term used in technical analysis as an indicator that a share price is too high and so may fall to meet the underlying trend. See Oversold.

Overdraft: A withdrawal of money in excess of the credit balance in a bank account. Overdrafts are usually arranged for three or six months, but this time can be extended. Unlike bank loans these are not usually repayable by monthly repayments, but simply on or before the expiry date. Technically banks can demand immediate repayment.

Overhang: A surplus of shares looking for buyers. Can occur when an institution has a large holding which it wants to sell or when a new or rights issue has flopped and the underwriters are left with a large line of shares overhanging the market.

Overheads: A company's general costs not associated with any specific product or service being manufactured, which must be paid regardless of the level of output - for example, rent and office staff.

Overheating: This occurs when an economy expands too quickly, leading to inflation and balance of payments problems. Imports may increase faster than exports leading to balance of payments deficits. Domestic inflation often follows, as a result of too much money chasing too few goods.

Oversold: A term used in technical analysis as an indicator that a share price is too low and so may rise to meet the underlying trend. See Overbought.

Oversubscription: Occurs when more applications are received for a new issue than there are shares available. Applications are either selected at random by ballot and the rest rejected, or they all are met, but only in part.

Pac-Man Defence: A counter-bid made by a takeover target company for the shares of the original bidder.

Paid Up Policy: Premature termination of a life assurance policy entitling the holder to a reduced scale of benefits.

Par Value: The price at which a bond or preference share will be redeemed. See Nominal Value.

Parallel Trading: If an investor in an EIS company already owns or controls a company which carries on a similar trade, this is known as parallel trading, resulting in the loss of tax relief on the EIS investment.

Partly Paid: When shares are floated on the market, investors are sometimes not initially required to pay the full price. A percentage of the price secures the shares, the rest to be paid by one or more installments in the future.

Pass: To fail to pay a dividend - probably due to poor company performance.

PAYE: Pay-as-you-earn. Regular deduction of income tax at source from an employee's earnings.

P/E Ratio: Price earnings ratio - the company's after-tax earnings per share divided into the share price.

Pennant: A small triangle chart pattern, usually occurring in a fast-moving short-term trend.

Penny Shares: Low value shares, perhaps below £1 in UK, below $1 in US, usually trading with above average spreads. Often high risk.

Pension: Regular payment generally made to retired person, widow or widower.

PEP: Personal Equity Plan -the precursors of IS As available until April 1999, enabling investment in shares or corporate bonds to accumulate free of income tax and capital gains tax. Existing PEPs may now invest in the wider range of investment choices available to ISA investors. See also TESSAs.

Personal Allowance: The level of income above which income tax starts to be levied.

Personal Equity Plan: See PEP.

Personal Pension Plan: See PPP.

PET: (l) Property Enterprise Trust - a pooled investment which allows investors in property to acquire an interest in an enterprise zone development. (2) Potentially Exempt Transfers - gifts not subject to inheritance tax unless the donor dies within seven years.

Physicals: See Actuals.

"Pink Sheet" Stocks: Low grade over-the-counter stocks, quoted in the "pink sheets" issued by the National Quotation Bureau in the US. Most are rarely traded, closely-held companies of uncertain value.

Placing: Method of raising money when a quoted company sells a block of new shares to a City institution.

Plain Vanilla Swap: The basic interest rate swap. Party A thinks interest rates will rise. It agrees to pay party B a fixed rate of interest for a set term. Party B expects rates to fall and agrees to pay party A a floating rate of interest for the same term.

Planned Credit: Personal loans which are less flexible than overdrafts. Banks require regular payments of capital and interest agreed at the outset and the loan has a fixed term, usually between one and ten years.

PLC: Public Limited Company - a legal term with certain conditions attached to its use. Only PLCs can offer their shares to the public. See Limited Liability Company.

Poison Pill: A defensive tactic taken by a company subject to a hostile takeover. Usually involves taking on increased debt to make a takeover less attractive.

Polarisation: The distinction between independent financial advisers, who are required to select the best products for an individual client's needs, and financial intermediaries who are tied to one particular financial institution's products - known as tied agents.

Pony: Slang for £25.

Pooled Investment: Investment in companies, properties and currencies made by funds and trusts acting on behalf of individual investors, e.g. unit trusts.

Portfolio: An investor's holding of stocks and shares, picked with some objective in mind, e.g. capital growth.

Potentially Exempt Transfer: A transfer, or gift, from an individual on which no inheritance tax will be payable provided that the individual lives for at least seven years after making the transfer.

Pound Cost Averaging: See Cost Averaging.

PPP: Personal Pension Plan, run by a life assurance company or other pension provider. Available to the self-employed and to employees who are not offered or do not wish to join an employer's scheme.

Pre-emption Right: A legal right which forces companies to offer new shares first to existing shareholders.

Preference Share: A share taking priority over ordinary shares in the event of a company being wound up. Usually pays a fixed dividend.

Premium: (l) Where the sum paid is in excess of the market value - the opposite of a discount. (2) Payments made to life assurance companies.

Premium Bond: (in the UK) A government certificate that pays no interest but is entered in regular draws for cash prizes.

Present Value: The value today of an anticipated sum to be realised in the future, discounted back according to an appropriate rate of compound interest.

Price Earnings Ratio: See P/E Ratio.

Price Fixing Hedge: Technique used by commodities traders who expect prices to change to guarantee a future buying or selling price. For example, if a commodity price is expected to rise, investors can be certain of the price by buying on the futures market.

Price Offset Hedge: Technically similar to a price fixing hedge, but used by middlemen who do not intend to take delivery of a commodity. They aim to match a buyer and seller on the market and use the forward market to cover possible losses if the price moves against them.

Primary Market: Term applied to that part of a stock-market's activities which allows companies to raise money by selling new shares to investors, usually via an underwriter.

Primary Trend: A long trend with its own support and resistance levels.

Privatisation: The selling of nationalised industries, such as British Telecom, to the public.

Probate: The process of authenticating a will. Before probate is proved the deceased's estate cannot be released to the heirs.

Profit Forecast: The profits which the directors of a company expect over a specified period. The company's auditors are required to provide a report on such a forecast, but companies are not required to make such forecasts. Usually accompanies a rights issue or new issue.

Profit and Loss Account: Along with the balance sheet, an essential part of any financial statement. It shows how much money has been earned or received over a specified time and how much money spent in expenses.

Profit Margin Ratio: Used in value investing, this is a company's profit expressed as a percentage of its turnover.

Program Trading: Trading in securities based on automatic signals from computer programs which analyse past price movements.

Property Bond: A form of indirect investment in property, similar to a unit trust. Often administered by life assurance companies.

Property Company Shares: An alternative to investing directly in commercial property.

Property Enterprise Trust: See PET.

Prospectus: Document detailing a company's history and financial position, required to be published before shares can be offered for sale to the public, to allow potential investors to assess the company's investment merits.

Proxy: Someone who is empowered to vote on another's behalf at company meetings.

PSBR: Public Sector Borrowing Requirement - how much money the government and its agencies must borrow to meet the shortfall between income and expenditure. If government spending grows faster than tax revenue, the government must raise taxes, issue stock or print money to finance it, any of which affect stockmarkets.

Public Limited Company: See PLC.

Pull-back: Used in technical analysis to describe a sharp and often short-lived move back to a breakout point. It occurs when traders take profits which have accumulated during the building of a chart pattern, resulting in a fall in prices.

Purchasing Power: Closely linked to inflation, the buying power of your capital or income.

Put Option: The right to sell a fixed number of shares at a fixed price on or before a given date.

Qualifying Policy: A life assurance policy which meets specific requirements, for example as to length, in order to qualify for the proceeds to be entirely tax free. Normally involves the payment of a regular, rather than a single, premium over a term designed to run for at least 10 years. See Single Premium.

Quotation: The buying and selling prices of a share given in the Official List.

Quoted Company: Listed on the Stock Exchange; the same as a listed company.

RAC: See RAP.

Raider: A company making an unwelcome takeover bid. Sometimes known as a Black Knight.

Rail Average: See Dow Jones Transportation Average.

Rally Peaks: Used in technical analysis to describe the series of peaks which occur during the formation of a primary uptrend chart pattern. An up and down or "wavy" movement occurs as share prices reach new highs followed by intervening lows.

Ramp: Heavy, concerted buying of a share designed to push up its price.

Random Walk: Theory that states past movements of share prices mean nothing in predicting the future.

RAP: Retirement Annuity Policy. Preceded PPPs and no longer available. Used by the self-employed and people not eligible to join a company scheme to provide a pension. Also known as Section 226 policies or Retirement Annuity Contracts (RACs).

Ratchet: A deal whereby managers can earn additional equity in a venture tied to their performance.

Ratio Analysis: A method of fundamental analysis used to appraise an individual company, taking information from both the balance sheet and income statement, and so enables investors to compare the company with others in similar businesses. It is especially useful in signalling which firms may be in trouble.

Ratio Call Spread: A risky strategy used when investing in traded options. For example, investors expecting a share price to rise can buy a number of call options and sell twice that number of calls with a different exercise price but the same expiry date. This strategy increases potential both for extra profit and unlimited loss.

Reaction: Term used in technical analysis to describe a short-term reversal in a price trend.

Real Interest Rate: The actual rate of interest paid after taking inflation into account. For a borrower paying, say, 10 per cent nominal interest and with inflation at 3 per cent, the real interest rate is 7 per cent.

Receiver: A person authorised by a company's creditors to retrieve their assets from that company.

Recession: A decline in GDP for two successive quarters.

Recovery Shares: Shares trading below previous values, but which investors believe have the potential to recover value.

Rectangle: A chart pattern formed when there is little share price movement - buyers and sellers are evenly matched, so the price remains "trapped". It is in effect a sideways trend.

Redeemable Preference Shares: Preference shares which the company is obliged to redeem at a predetermined price at some specified date or dates.

Redemption: The end of a set period when the value of a security is paid to its owner.

Redemption Yield: Yield received when a security is held until its redemption date, consisting of interest due plus or minus any increase or decrease in the price of the security.

Registrar: The official charged with keeping a record of who owns a company's shares; often a bank or trust company.

Reinvestment Relief: Allows CGT to be deferred when the gain is reinvested in certain qualifying investments, for instance a Venture Capital Trust or an EIS.

Relative Strength: Technique used by stockmarket analysts to measure the performance of a share in relation to a market index.

Repayment Mortgage: A type of home purchasing loan. Each month the borrower repays a small amount of the loan in addition to the interest. Contrast this with an Endowment Mortgage.

Residence: The country in which you are regarded as living for tax purposes.

Resistance Level: The highest price to which a share has tended to rise, suggesting that, at this price, investors are prompted to sell. There is resistance to buying at higher prices.

Retail Price Index: See RPI.

Return on Capital Ratio: Used in value investing, this indicates the return on total long-term capital employed, both equity and borrowings.

Reversal (Pattern): A term used in the analysis of chart patterns to predict share price movements, indicating a change in the direction of share prices. Common reversal chart patterns include head and shoulders, saucer, double top and triple top.

Reverse Takeover: The process whereby a small company acquires a quoted company, and then changes the name of the quoted company to its own. This may be a cost effective route to a public listing.

Reverse Yield Gap: When Gilts provide a higher yield than shares.

Rights Issue: Offer of new shares to existing shareholders, usually at a preferential price.

Ring Fence: Legal requirement for financial institutions to hold client investments and cash in legally differentiated accounts, so that in the event of the institution collapsing the clients' funds are segregated from those of the company and may not be seized by the administrator or liquidator.

Ripples: Used in technical analysis to describe random day-to-day share price movements which have no predictive significance.

Risk: The extent to which an investment is likely to fail. As a general rule, the greater the risk the greater too is the potential for gain.

Risk Profile: A measure of an investor's attitude to risk -how cautious or speculative he or she is.

Rolling Settlement: You must pay for your purchase of securities or receive payment for your sale of securities within a fixed period of time, currently 3 days from the date of the transaction. It is planned that eventually this period will be reduced to within 1 day.

Roll-over Relief: A tax concession which allows investors and businesses to defer the payment of CGT. For example, if proceeds from the sale of a fixed asset are reinvested, CGT is not payable until the new asset is sold.

Roll-up Fund: A fund in which income is added to the capital already invested rather than paid out to the investor.

RPI: Retail Price Index - the Office for National Statistics' index that is used to calculate the inflation rate. It is often accompanied by an index excluding mortgage interest payments known as the RPIX, and an index excluding mortgage interest and indirect tax payments known as the RPIY.

RSI: See Welles Wilder Relative Strength Indicator.

Rule of 72: To calculate how long it will take to double money with interest reinvested, divide the interest rate into the number 72. For example, at 8 per cent it would take nine years to double the principal - 72 divided by eight is nine.

Rule of 115: To calculate how long it will take to treble money with interest reinvested, divide the interest rate into the number 115.

Running Yield: Annual return based on the current market price.

S2P: Commonly used abbreviation for the State Second Pension.

Samurai Bond: Loan stock denominated in yen, issued in Tokyo by non-Japanese companies and institutions.

Saucer: A reversal chart pattern, made up of a gradual rounding top. When the share price drops below the previous low, a downside breakout or further decline is indicated.

SAYE Sharesave: Save-as-you-earn tax exempt saving scheme run in conjunction with a bank or building society by employers offering an approved employee share option scheme, allowing employees to build up a capital sum. Investors may save between £5 and £250 per month for up to 5 years.

Scorched Earth Policy: Any move to make a takeover target unattractive - selling off assets, for example, or deferring payment of debts to become due following any merger.

Scrip Issue: The reorganisation of  a company's capital so as to produce extra shares which are distributed to shareholders in proportion to their existing holding. See Bonus Issue.

SEAQ: Stock Exchange Auto- mated Quotes system - computerised system showing prices at which Stock Exchange members are prepared to deal.

SEATS: Stock Exchange Alternative Trading Service: The Stock Exchange's facility for dealing in shares of AIM or other listed companies having too small a turnover for market-makers or to be traded on SETS.

SEC: Securities and Exchange Commission - the US regulatory body responsible for the securities industry. It has more extensive powers than the UK's FSA.

Secondary Market: Distinct from the primary market in that shares are bought and sold second-hand. The proceeds from the sale then go only to the seller, not back to the company that originally issued the shares.

Section 32 Policy: A type of money purchase pension policy run by a life office for the purpose of transferring your pension benefits from an occupational pension scheme.

Section 226 Policy: See RAP.

Sector: Classification of securities by groups such as by geography or type of industry.

Securities: General term for stocks, shares and investments.

Segregated: An account with an investment adviser holding separate funds to be used only for agreed-upon purposes.

Self Regulatory Organisations: See SRO.

Sell Signal: The reverse of a buy signal.

Selling Uncovered: See Short-seller.

Semi-numismatic Coins: Similar to numismatic coins, but struck between 1804 and 1850.

Senior Debt: Secured debt ranking first in order of repayment should a company declare bankruptcy. See Junior Debt.

SERPS: The State Earnings Related Pension Scheme -income-related pension additional to basic pension available only to employees, not to the self-employed. Superseded by S2P in April 2002.

SETS: Stock Exchange Electronic Trading Service. The London Stock Exchange's automated trading system for the largest companies -including those in the FTSE 100 Index. Trades from buyers and sellers are matched automatically, so removing the need for market-makers. Companies with a smaller turnover of shares still use the SEAQ system.

Settlement Day: The day when you pay for your securities purchases or receive payment from your broker for any sales you have made. Under rolling settlement now 3 days after the date of the bargain, eventually to be within 1 day.

Settlor: One who makes a settlement, especially of property or trusts.

Share: See Equity.

Share Exchange: Buyers of unit trusts may be able to swap shares they own for units in the trust, and so save on dealing charges.

Share Option: An offer by a company, usually to its employees and directors, to buy its shares at a given price before a specified date. With a growing company this can be a valuable employee incentive.

Shark Repellent: Changes in company articles, e.g., board regulations or share structure, to make a company unattractive to a hostile takeover.

Shell Company: Usually a quoted company, with easily disposable assets, that can be used as a vehicle for other activities.

Shogun Bond: A bond issued in Japan by foreign corporations. Similar to yankee-yens except that Shogun bonds are denominated in currencies other than yen.

Short: A gilt which is due to be redeemed within five years.

Short Position: Securities or commodities sold short and not covered. See Short-seller.

Short-seller: A trader who believes the price of a share will fall and who "borrows" shares and sells them, hoping to re-purchase at a lower price.

Short-term Capital: A loan which is repayable in less than five years, such as an overdraft.

Sideways Trend: In technical analysis this describes a situation where there is no strong uptrend or downtrend and share prices remain on an even keel. An example of a chart pattern showing a sideways trend is the rectangle.

Single Company PEP: A restrictive type of PEP, invested in only one company at any one time, now obsolete.

Single Pricing: Method of pricing unit trusts so that investors buy and sell at the same price. Commonplace in Europe, making slow inroads into the UK unit trust industry. Cf. bid/ offer spread, dual pricing.

Single Premium: A life assurance investment in the form of a bond which consists of a once-only payment. Not a qualifying policy, so some investors may be liable to higher rate tax on maturity.

Sinking Fund: Money set aside regularly to repay a debt or loan.

SIPP: Self Invested Pension Plan, a way by which individuals may determine the investments of their own PPP.

Sleeping Beauty: A particularly attractive takeover prospect not yet discovered by any raider.

Small Self-Administered Scheme: See SSAS.

Snake: A forerunner of the European Monetary System.

Soft Commodities: Non-metals such as sugar, coffee and cocoa. See Commodity.

Soft Landing: The opposite of a hard landing - when an economic boom slows down without causing a serious recession.

Solvency: Ability to pay all debts and liabilities when they become due.

Souks: The traditional gold markets of North Africa and the Middle East. Now linked electronically with New York and London, forming an important part of the worldwide precious metals markets.

Sovereign: A British gold coin, face value £1.

Special Situation: A security which investors believe to be likely to perform above average or better than in the past.

Speculator: A person seeking short-term gain often involving above-average risk, as opposed to an investor who normally takes a longer-term view.

Split-level Trust: Also known as split capital trust, a type of investment trust that divides the ordinary capital of the company into two separate classes. One receives income and a pre-determined capital value on liquidation. The other receives little or no income, but an entitlement to all the remaining assets held by the trust on its break-up.

Spot: The price for immediate delivery of a currency.

Spot Market: A market where goods or currencies are sold for immediate delivery on the basis of immediate payment -you buy a commodity or foreign currency at the spot price or exchange rate prevailing on the day and at that time. You pay immediately to settle the deal. See also Forward Market.

Spread: The difference between the bid and offer price.

SRO: Self Regulatory Organisation, such the FSA.

SSAS: Small Self-Administered Scheme for pension contributions, useful to owner-directors. Cf SIPP.

Stag: The buyer of shares in a new issue who hopes to sell them immediately at a profit.

Stagflation: Economic stagnation combined with inflation -e.g. a soft landing that goes wrong resulting in a slow economy and high interest rates.

Stakeholder Pension: Type of private pension scheme endorsed by the government. They must adhere to government rules designed to make them low-cost and flexible.

Stamp Duty: Tax payable on buying a house above a certain value or purchasing shares.

Standard Deviation: A statistical measure of the variation in price of a security, e.g. a share or unit in a unit trust. This indicates the risk, in other words the extent to which the actual return on a specific investment might differ from the expected or average return.

Standard & Poor's Stock Price Index (S & P 500): US stockmarket index broader than the Dow Jones Industrial Average, covering 500 shares.

State Earnings Related Pension Scheme: See SERPS.

State Second Pension (S2P): An income-related pension additional to the basic state pension available only to employees, not to the self-employed. Replaced SERPS in April 2002.

Stockbroker: A member of a firm dealing on the stock exchange.

Stock Exchange Alternative Trading Service: See SEATS.

Stock Exchange Automated Quotes: See SEAQ.

Stock Exchange Electronic Trading Service: See SETS.

Stocks: (l) interest-bearing government securities; (2) securities issued and quoted in parcels, typically £100, generally paying fixed interest. (3) US term for 'shares'.

Stop-loss: A notional price, perhaps 20 per cent below the buying price, at which a share will be sold to avoid further losses. See also gain-lock.

Stop-loss Order: An instruction to a broker trading in shares, options and commodities to close out the client's position (cease trading) automatically if the price falls (or, in the case of a short sale, rises) to a certain level. See also Stop-profit Order.

Stop-profit Order: An instruction used in commodities trading to close out a profitable position. See Stop-loss Order.

Straddle: Simultaneously buying and selling an option on a security to protect against price movements.

Striking Price: Price at which an option or tender is granted.

Stripping: Separating an investment from its stream of income so that the latter can be sold as a separate item from the capital sum.

Stub: Term used in a takeover if part of the offer is in cash and part is in the form of a stub: a share in the equity of the bidder.

STUDS: Stepped Interest Debenture Stocks. First available in 1982, these pay a low rate of interest at first - the interest rate is increased each year up to a predetermined level.

Sugging: High-pressure selling of timeshares to holiday-makers, commonly in parts of Spain where there are ineffective controls on the marketing of holiday homes.

Sum Assured: Value of insurance cover.

Sunk Cost: A cost which cannot be retrieved, as in the premium paid for a traded option.

Supply-side Economics: Economic theories which concentrate on supply or the production of goods and services. Supply-side economists are particularly concerned with the effect on production of factors such as taxes on labour or cuts in social security benefit which might affect the level of employment.

Support Level: The lowest price to which a share has tended to fall in the recent past, suggesting that, at this price, investors are prompted to buy or support the share price.

Suspension: When a company's shares may no longer be traded, because there is insufficient information for investors to assess their true worth, for instance if the company is in takeover talks, or if a receiver has been appointed.

Swap: A contract between a party with a fixed rate security and a party with a variable rate security to exchange future interest rate payments.

Takeover: Purchase by one company of another.

Takeover Panel: Supervisory body that regulates takeovers.

Tangible Assets: Assets with a physical existence, such as cash, machinery, buildings, stock.

Taper relief: A system introduced in 1998 to reduce the amount of capital gains tax depending on the how long the asset has been held. Replaced indexation relief.

Target: A company for which a takeover bid is made.

Tax Avoidance: Paying as little tax as possible by legal and proper methods. It is sometimes actively encouraged by the government - for example, investment returns from National Savings & Investments Certificates are completely tax free - there is no need to disclose the investment to the Revenue. Contrast Tax Evasion.

Tax Break Investment: Used to describe an investment which offers a method of tax avoidance - legally reducing the amount of tax normally paid.

Tax Code: A code that tells your employer how much tax to deduct from your salary.

Tax Credit: (l) A proportion of the sum paid by a company in dividends which is added onto the net sum received to arrive at a shareholder's notional gross dividend income. The tax credit is deemed to discharge in full the tax liability of basic rate and lower rate taxpayers. (2) Government benefits or tax reliefs for those on low incomes, with children or special needs.

Tax Evasion: The illegal nonpayment of tax or reducing a tax bill by dishonest means -for example, by not revealing the total amount of taxable income to the Revenue. See Tax Avoidance.

Tax Haven: A country which legally enables individuals and companies from other countries to avoid or pay lower rates of tax by allowing them to live or base their operations there.

Tax Relief: Deductions that are allowed to be made in arriving at your taxable income or gains etc., including personal allowances, certain tax credits and certain expenditure that may legally be deducted from gross income, profits or gains.

Tax Voucher: Document issued by companies paying dividends showing the net payment and the amount of the tax credit.

Tax Year: See Fiscal Year.

Taxable Income: Total income minus any tax free allowances.

Technical Analysis: An approach to the problem of timing purchases and sales of securities, commodities and currencies that emphasises previous supply and demand conditions affecting shares or the market as a whole. It uses detailed charting and interpretation of price movements.

Tender: A way of setting the price of anew issue of shares. Investors are asked to name the price they would be prepared to pay above a fixed minimum and, in effect, to bid for the shares as in an auction.

Tender Offer: An offer to buy securities such as shares within a certain period at a price suggested by the purchasers. Gilts are initially sold by tender to institutions.

Term Assurance: Life assurance that pays a specified amount if you die within the term, or period, of the policy but provides no other benefits.

Terminal Bonus: Money paid on maturity of a with-profits life policy in addition to the original sum assured. Not guaranteed, it depends on the life assurance company's profits.

TESSA: Tax Exempt Special Savings Account - five-year tax-free savings scheme available until April 1999. Superseded by ISAs in April 1999, but with lower annual investment limits.

Tied Agent: A financial intermediary tied to the products of one particular financial institution. See also Polarisation.

Tiger: Treasury Investment Growth Receipt. A zero coupon bond linked to US Treasury Bonds.

Time Deposit: US term for a bank deposit account.

Timeshare: A share acquired in a holiday property which allows investors to use it for a specified period of time every year. The seller's marketing costs are high, which depresses the resale price.

Tin Parachute: Severance pay for employees following a hostile takeover.

TMT: Technology, Media & Telecommunications Sector.

Top-down Approach: The inverse of the bottom-up approach, this method of investment analysis, which often uses charts, involves looking at the overall economy, to see which securities will benefit from current trends.

Touch: The difference between the highest bid and the longest offer price on a group of market-makers' two-way price quotes - the minimum spread. See also Yellow Strip.

Tracker Fund: A unit trust which attempts to replicate the performance of a particular index. It may do this either by buying shares in all the companies in an index or by using statistical techniques if there are too many companies in an index, such as the FTSE All-Share.

Traded Option: The right to buy or sell certain shares at a fixed price over the life of the option. The writer of the option receives the premium paid in return for the liability of being called upon to buy or sell shares at the fixed price. If the option is not exercised, it expires worthless.

Traditional Option: Similar to a traded option, but has no intrinsic value as it cannot be traded. A profit is made only by exercising the option.

Tranche: French word meaning a slice - used to describe a portion of a major financial offering that is being drawn down or taken up as part of a staged process.

Transient Income Investor: An investor who chooses short-term low-risk income investments for his immediate needs while waiting for alternative opportunities.

Treasury Bills: Ninety day loans to the government, these are taken up almost exclusively by financial institutions and only rarely by private individuals.

Treasury Stock: Loans to the government for an initial period exceeding 90 days. See Gilts.

Trend: The direction of movement of an economic variable, e.g. the price of a share, over a period of time. See Trendline and Primary Trend.

Trend Channel: Formed by drawing parallel trendlines on to a chart pattern, joining the significant low points and rally peaks to show the scale and direction of the trend. See Trend and Trendline.

Trend Reversal: Occurs when a trend changes direction.

Trendline: Used in technical analysis, a line drawn to join the significant high or low points on a chart to predict price movements. Trendlines indicate the direction in which a price has been moving. See also Trend, Trend Channel, Trend Reversal and Primary Trend.

Triangle: A chart pattern formed usually within a major up or down trend, signifying dramatic fluctuations in share prices and reflecting traders' indecision as to which way the markets will move. See also Flag and Pennant.

Triple Top: A reversal chart pattern which shows three level points at which share prices have peaked before declining, signalling a failure. Double tops are more common.

Trust: Assets, such as money or property, administered by one or more people on behalf of others, the beneficiaries. See Trustee and Beneficiary. Also used for some pooled investments e.g. unit trust, property enterprise trust, investment trust.

Trust Deed: A legal document setting out the terms of an agreement between trustees and other individuals. In the case of a unit trust, it defines the rules binding the fund managers. A family trust states the powers of the trustees and rights of the beneficiaries. When debentures are issued, the deed is held by trustees -it states the terms of the loan, when it is repayable and the power of the debenture holders.

Trustee: A person who has the responsibility for a trust's management. See Trust and Beneficiary.

Turnover: (l) stockmarket term for the value of shares traded in a day: (2) company term for the total value of sales before any deductions, e.g. for costs, are made.

UCITS: Undertakings for Collective Investments in Transferable Securities - unit trusts need to adhere to the Undertakings if they are to be freely marketed in other European Union countries.

Ugly Buying/Selling: The ostentatious buying or selling of shares done to attract attention. It may be done to let other traders know that an attempt is being made to raise or lower a price or it may be done in order to deceive or mislead.

Umbrella Fund: An offshore fund offering a variety of sub- funds allowing an investor to switch between them, e.g. different currencies, different stockmarkets. The 1989 Budget abolished such funds' capital gains tax benefits.

Unbundling: Colloquial term for asset stripping involving the demerging of separate viable businesses which have no logic together.

Uncovered Writer: Also known as a naked -writer, a person offering to sell traded options when he does not actually own the underlying securities. He then has to supply or buy the shares if he receives an assignment notice and so is vulnerable to greater risk than a covered writer.

Under Par: Priced below face value.

Undated Stocks: Government stocks with no redemption date. Also known as Irre-deemables. See also Consols and War Loan.

Underwriter: (l) A financial institution that agrees to take up shares in a new issue in the event that not all are sold to the public.(2) An individual who is a member of Lloyds and who accepts part of the risk of an insurance contract.

Unitisation: Investment trusts "unitise" when they become unit trusts. Their assets are divided into units, which are sold at a figure close to the value of the underlying shares held. Investment trust shareholders benefit from the eradication of the traditional discount.

Unit Linked Life Assurance: A life assurance policy linked with unit trust investment. The ultimate return depends upon the performance of units purchased on behalf of investors by the life assurance company.

Unit Trust: A managed mutual trust fund of investors' money. The investor is issued with units that correspond to the size of his investment, and these units vary in price with the value of the underlying investments. Such investments can range worldwide, in accordance with the particular trust deed, and may be made in stocks, shares, property etc.

Unquoted Securities: Shares which may be traded on a stockmarket, but do not meet its requirements for an official "listing". Small companies and new ventures often fall into this category. See also Listed Company and London Listing.

Unsecured Loan Stock: A fixed interest security that is issued by a company but is not secured by any of the company's assets.

Upside Breakout: A sharp rise in the price of a share or commodity, where the previous resistance level becomes the new support level. See also Breakout.

Value Added Tax: See VAT.

Value Investing: Method relying heavily on the theories of Benjamin Graham for choosing shares which have intrinsic value and keeping or selling them in accordance with Graham's standards, or later modifications thereof.

Variable Ratio Averaging: A strategy of switching between securities as market prices fluctuate. It involves drawing a trendline showing the value above which traders sell shares and buy defensive securities, and below which they do the opposite. One drawback is that it requires constant supervision, unlike constant ratio averaging which is virtually "automatic".

Variation Margin: If a futures contract begins to turn sour a broker may ask for variation margin - a demand for more real cash to keep a client's account in credit while prices are falling. Same as margin call.

VAT: Value Added Tax - an indirect tax levied on each stage of the production of most goods and services. Businesses registered for VAT reclaim the VAT they pay to their suppliers. See exempt supplies and zero rated.

Venture Capital Trust (VCT): Tax efficient form of investment trust designed to provide start up or expansion capital for unquoted companies.

Vertical Spread: See Bull Call Spread and Bear Call Spread.

Viatical contracts: A procedure allowing terminally ill policy-holders to raise cash by selling their life assurance policies to investors.

Volatility: When applied to share price movements, the faster the price of a particular share changes and the greater the size of those price movements, the more volatile the share is.

Voluntary Liquidation: Decision to appoint a liquidator made by the management of a company, rather than by its bankers.

Voting Rights: The rights that accompany ownership of a share to vote at company general meetings. Not all shares carry these rights.

War Loan: A gilt which was issued by the government during the First World War. It is the best known undated stock and is the only gilt that pays interest gross, regardless of the residence or other status of its owner.

Warrant: A security that confers the right to buy shares at a predetermined price.

Weighted Ballot: A ballot system which gives preference to a specific category of investor.

Welles Wilder Relative Strength Indicator: An overbought/oversold indicator used in technical analysis to give warning signals that a trend is about to lose momentum, and to highlight overbought and oversold conditions. Developed originally for use in the commodities markets, the name refers to current price strength relative to the price strength in the past. Also known as the Rate of Change Indicator, it is distinct from relative strength which measures the performance of a share relative to a market index (share price move divided by the change in the index).

White Knight: A company that rescues another company being threatened by a hostile takeover.

Whole Life Policy: A life assurance policy that guarantees payment whenever you die, unlike term assurance, which has a limited term of years.

Will: Written declaration of a person's wishes regarding the disposal of his or her estate after death. See Intestate.

Winding-up: The liquidation of a company or business when it stops trading. This may happen because of bankruptcy or because the shareholders decide that the company's initial purpose has been fulfilled.
Withholding Tax: Tax deducted by many countries from income payments such as dividends, interest and royalties. May be offset, reduced or negated by Double Taxation Relief.

With-proflts: Endowment assurance is said to be with-profits when bonuses related to profits are added to the basic sum assured.

Working Capital: See Net Current Assets.

Working Capital Ratio: Used in value investing to evaluate the performance of a company by dividing current assets by current liabilities.

World Bank: Better known name for the International Bank for Reconstruction and Development, a United Nations agency established in 1944 under the Bretton Woods Agreement. It provides or guarantees long-term loans for less-developed countries.

Writer: (l) The seller of an option contract; (2) An insurance underwriter.

Wrongful Trading: Under the Insolvency Act 1986 directors of a limited company commit a criminal offence if they allow their company to continue trading when they know it cannot meet its liabilities to creditors.

Xa: Ex-all - shares not entitled to dividends, rights issues, scrip issues or warrants.

Xc: Without scrip - not qualifying for a recently declared scrip issue.

Xd: Without dividend - not qualifying for recently declared dividend.

Xr: Without rights - not qualifying for recently declared rights issue.

Xw: Without warrants -shares not entitled to warrants.

Yankees: A market term to describe American securities, often applied to loan stock.

Yankee-yen: A type of Eurobond denominated in yen, issued in Japan by foreign corporations and traded mainly by institutions.

Yearlings: Local authority stock maturing in one year.

Yellow Book: Familiar name for the rulebook of the London International Stock Exchange publication "Admissions of Securities to Listings".

Yellow Strip: The yellow band on a SEAC or SETS screen displaying the highest bid and lowest offer prices that competing market-makers are offering for securities. Also known as the touch.

Yield: Annual return from an investment expressed as a percentage of the current price. See also Current Yield, Dividend Yield, Earnings Yield, Flat Yield, Redemption Yield and Running Yield.

Yield Curve: A graph showing interest yields over a period of time. Often applied to gilts to compare the return on shorts, mediums and longs.

Yield Gap: Difference between yield on shares and 15 year gilts.

Zaitech: The Japanese system of "financial engineering" whereby dubious accounting is used to show increased profits, or at least that a company has not performed as badly as it might otherwise have done.

Zero-coupon bond: A bond issued by government departments and large companies that pays no interest but which is issued at a large discount to its nominal value to reflect the equivalent of interest. Normally dollar denominated and not common in the UK.

Zero Dividend Preference Share: A type of preference share which is issued at a discount to its par value so as to provide a fixed return after a specified period.

Zero Rated: Goods (such as food, books and periodicals) taxed at the lowest, nil, rate of VAT. A supplier can reclaim VAT paid in the course of production. All exports are zero rated. Do not confuse with exempt supplies.