Shares A Beginners Guide to Making Money Contents
After hours deal The stock exchange closes at 3.30pm but deals are often done after this time and the transaction dated the following day.
Allotment letter A document showing that you have been allotted a certain number of newly issued shares.
All share index See FT-Actuaries All-Share Index.
Annual general meeting (AGM) Every company must have an AGM each year, to allow shareholders to vote on the accounts, directors and dividends and question the board on the company's affairs.
Annual Report The yearly independently audited report to shareholders which must be produced by all publicly quoted companies.
Articles of Association A document setting out the objects and administration of the company.
At best An order to a stockbroker to get the best possible price he can obtain for your benefit as opposed to limiting your order to a fixed price.
Balance sheet A statement of assets and liabilities that must form part of a company's accounts.
Bargain The term for any deal on the stock exchange, purchase or sale.
Bear Someone who thinks that the price of a share or stock market prices in general are about to fall.
Bearer stocks Stocks which are not registered in the name of the owner. They are therefore transferable by delivery like a currency note and should always be kept in a safe place, preferably in the bank.
Bed and breakfast deal Selling shares one day and buying them back the next in order to establish a profit or a loss for tax purposes.
Bid price The price you sell your stocks or shares.
Big bang New Stock Exchange regulations with effect from 27th October 1986. Briefly, it means the end of the closed shop whereby stockbrokers could only deal with jobbers (the market wholesalers of shares). Now all Stock Exchange firms can combine the job of stockbroker and jobber in which case they are known as market-makers.
Information technology will expand. A market-maker will be able to display his current prices on terminals accessible anywhere in Britain - and indeed the world. Deals must be reported to a central computer within five minutes by the market-maker. You will not only be able to tell what the latest prices are, but also the volume of business being done.
Blue button A stockbroker's clerk who is allowed on the trading floor.
Blue chip The shares of large well established companies. The expression is thought to have been derived from blue chips, the highest denomination of chips used in casinos.
Bonus issue A free issue of shares to shareholders in proportion to their existing holdings. For example, if you hold 200 shares in Lucky Days PLC who give a bonus issue of one for one you will receive another 200 shares. You now hold 400 shares, but you may be no better off initially because the price of the shares in the market can halve. The object of the exercise is to divide the company's capital into more manageable units. Also known as scrip issue or capitalisation issue.
Bull Someone who thinks that the price of a share or the market in general is about to rise.
Business expansion scheme A scheme for allowing investors to put money into shares which are not quoted at the stock exchange or the Unlisted Securities Market. Buyers get tax relief if they hold the shares for at least five years. The aim is to help small companies obtain finance.
Call A further instalment due on shares which are only partly paid. For example, there were two calls on British Telecom shares of 40p each.
Call option See options.
Capital The money used to set up a business. Share capital is the money which is raised by selling ordinary and preference shares to shareholders. Loan capital is long-term borrowings. Authorised capital is the total amount in shares a company is empowered to issue. Paid-up capital is the amount of shares the company has sold to shareholders.
Capitalisation issue See Bonus issue. Also known as scrip issue.
Cash settlement Some deals such as Gilts and traded options are done for cash rather than for account settlement. These deals have to be settled the day following the deal.
Compensation fund A fund maintained by the Stock Exchange to make good any losses to the public if a stockbroker should fail.
Convertible stock A form of loan stock convertible into ordinary shares usually on a specified date, or between specified dates. For example, a convertible loan stock 9% 2002 pays a regular 9% interest a year, but you have the choice to convert it into ordinary shares in the company at a specified rate of exchange (e.g. 2 ordinary shares for each £1 of loan stock) on say 1 June 2002. In some cases you are given a choice of dates and rates of exchange. For example, a convertible loan stock 2002/4 could offer you the choice of converting to ordinary shares on 1 June 2002 at 10 ordinary shares per £1 stock, or 1 June 2004 at 8 ordinary shares per £1 stock.
It can be said that convertible stock offers a two-way bet because you continue to receive regular interest, but if the ordinary shares go up so will the price of the stock in accordance with the underlying value of the terms of the conversion. On the other hand, if the ordinary shares fall you can keep the convertible stock until its redemption date and continue to receive the regular interest payments.
Contract note A written confirmation from the broker that a bargain (buying or selling) has been carried out.
Coupon is the amount of interest payable on a fixed interest stock.
Cum dividend Shares sold entitling the buyer to receive the next dividend.
Cum rights A share bought together with the rights issue attached to it.
Cum scrip A share bought together with the scrip issue attached to it.
Dawn raid The purchase of a large number of shares early in the morning at the opening of the market. Often the first step in a takeover bid.
Dealing Buying and selling shares.
Debenture Stock issued by a company and backed by its assets. It carries a fixed interest rate and is quoted like Government stock in terms of £100 nominal units. Its market value will move in sympathy with interest rates.
Depreciation Money set aside to pay for the replacement of assets.
Dividend The part of a company's profits distributed to shareholders, usually on a regular basis. An interim dividend is paid at the half-year stage and a final dividend at the end of the full year.
Dividend cover The number of times the gross dividend could have been paid from the company's profits (after tax and payment of interest and preference share dividends).
Earnings per share A company's profits (after payment of interest and preference share dividends) dividend by the number of shares issued.
Equities Ordinary shares as distinct from debenture and loan stock. If the company does badly the dividend to ordinary shareholders is the first to be cut, but if the company does well the ordinary shareholder can expect to receive an increased dividend. The ordinary shareholder takes the greater risk in the expectation of receiving the greater reward.
Ex-dividend A share bought without the right to receive the next dividend which is retained by the seller.
Ex-rights A share bought ex-rights is not entitled to receive the rights issue previously attached to it.
Ex-scrip A share bought ex-scrip excludes the rights to the scrip issue attached to it.
Extraordinary general meeting A special meeting called to provide shareholders with an opportunity to consider some special decision or happening concerning the company.
Final The dividend declared with a company's year-end results.
Flotation When a company's shares are offered on the market for the first time.
FT-SE 100 The Financial Times Stock Exchange 100 Share Index (Footsie). The index is recalculated every minute and is considered by many to be the best barometer of the market.
FT-SE 250 The Financial Times Stock Exchange 250 Share Index . The index covers the next 250 largest UK companies.
FT-SE 350 The Financial Times Stock Exchange 350 Share Index . The index includes all the shares in the FTSE 100 and FTSE 250 indices.
FT-Actuaries All-Share Index An index covering over 900 shares. A slightly misleading title.
Futures Contracts which give the holder the right to buy or sell the FT-SE 100 Share Index for an agreed price at a future date.
Gilts An abbreviation for gilt-edged. Stock issued by the Government on which there is little risk of default and an annual fixed rate of return.
Gross Interest paid without deduction of tax.
Hammering The expulsion of a member of the stock exchange because he is unable to meet his commitments.
Hedge A means of insuring the risk.
Index linked gilt Government stock with interest and final redemption payment tied to the Retail Price Index.
Institutions A term used to cover all the insurance companies, banks, building societies, unit trusts, investment trusts, pension funds and similar large investment organisations. Institutional buying or support is sometimes given as a reason for a share 5 rise.
Investment Trust A company which invests in shares. It differs from a unit trust because its own shares are quoted on the stock exchange.
Limit order An order to a stockbroker specifying a price limit so that the deal can only be done at that price or better.
Liquidation The conversion of assets into cash.
Listed company A company whose shares have been listed and are dealt on the Stock Exchange.
Loan stock Stock bearing a fixed rate of interest. Unlike debenture stock it need not be secured by assets.
Long Someone holding shares can be said to be long of them.
Longs When used in connection with stocks it refers to long-dated stocks with maturity dates of fifteen years and more.
Market-maker New name for a broker who fixes the price of stocks and shares.
Medium term Refers to stock with maturity dates of five to fifteen years.
Middle price Halfway between the bid and offer price.
Net asset value The value of a company after all debts have been paid expressed in pence per share.
New issue A company coming to the market for the first time.
Nominee Someone acting on another's behalf. Shares may be registered in the name of a nominee rather than in your own name to allow the nominee to manage them for you (i.e. deal with rights issues etc.). This service can be very useful if you live abroad or are often away from home. Banks sometimes insist that you transfer your shares into the name of their nominee company if you offer them as security for a loan. The bank is then able to sell the shares if you fail to repay the loan.
Nominal value The face value of a share or stock as opposed to its market value, also called par value.
Offer price The price at which you can buy stocks and shares.
Options The right to buy (call option) or sell (put option) a specified share at a specified price within a specified period. For this privilege you pay option money. There is no obligation for you to buy or sell the shares. You can let the option lapse if you wish. Example: You pay 20p per share for a three months' call option on Lucky Day shares at 265p, being the price at which they are standing in the market at present. During the next three months the shares rise to 305p so you take up your option to buy at 265p and make a net profit of around 20p a share. Alternatively, if the shares fall to 250p you do not take up your option, but lose 20p per share.
A double option gives the right to buy or sell a share. A traded option is an option which itself can be traded throughout the course of its life.
Traded option prices are quoted in the Financial Times. For further information and literature contact the Options Development Group, The Stock Exchange, London EC2N lHP.
The main attraction of options is that you limit your risks but not your rewards. The rule is if you see a good profit, take it quickly. Do not play with options unless you can lose your entire option premium and still afford a holiday on the French Riviera.
Ordinary share A share on which the dividends vary in amount depending on the decision of the directors and based on the profitability of the company.
Over the counter market (OTC) A market outside the stock exchange in which small companies are able to raise money by issuing shares to the public. Very risky.
Par The nominal value of a stock or share.
Partly paid Shares which have been only partly paid for and on which further payment or payments are due.
Penny shares Shares with a market value of less than l0p to 50p.
Plc Public Limited Company (previously Ltd). Private limited companies are still Ltd so you can now tell the difference. Some Plc companies are not quoted on the Stock Exchange.
Placing The sale of a large number of shares in one company by arrangement direct to institutions and others without going through the market.
Portfolio A selection of shares held by an individual or a fund.
Preference share A share giving a fixed rate of dividend. The dividend ranks ahead of ordinary shares, but below debentures and loan stock.
Price-earnings ratio (P/E) This is calculated by taking the current earnings (profits after certain deductions) of the company and dividing them by the number of shares issued. This gives the earnings by share figure. It is then divided into the current share price which gives the P/E ratio. See also Earnings per share.
Prospectus An independently audited document detailing a company's financial history and current situation and published ahead of a new share issue.
Proxy Someone who votes on your behalf if you cannot attend a shareholders' meeting. You can tell your proxy how to vote or let him make up his own mind.
Quoted A share listed on the stock exchange.
Redemption The date when the nominal value of a stock will be repaid to the holder.
Redemption yield The yearly return you get from a fixed interest stock which you hold until it is redeemed. It consists of two parts: the interest, often after tax, and the averaged out difference between what you paid and the value at redemption.
Registered stock Stock in which the name of the holder is listed in the company's register and the stock is transferable only by his signature on a stock transfer form as opposed to bearer stock which is transferable by delivery.
Renunciation The giving up of the right to be registered as the holder of a new issue, enabling the issue to be transferred to another.
Rights issue The issue of extra shares to existing shareholders, usually at a preferential price.
Scrip issue Same as Bonus issue.
Securities A general term for stocks and shares.
Share certificate An official document issued by the company stating the name of the shareholder and the number of shares owned.
Share perks A number of companies give benefits to their shareholders. These include discounts on wine, clothes, holidays, dry-cleaning and light fittings.
Short If you sell a stock which you do not own you are said to be selling short.
Shorts Government stock due for repayment within five years.
Spread The difference between the buying and the selling price. Or a variety of investments.
Stag Someone who applies for shares in a new issue with the intention of selling them immediately at a profit.
Stale bull Someone who has bought shares in anticipation of a quick rise which has not materialised.
Stamp duty A UK tax levied on the purchase of shares with the exception of Government stock and new issues.
Stock A security giving a fixed rate of interest for a fixed period.
Striking price The price at which an option is granted. See Options.
Sweetener A high-yielding stock or share included in a portfolio to raise the average yield overall.
Switch The purchase and sale of investments carried out at the same time to change the composition of the portfolio.
Take-Over One company obtaining control of another by obtaining a majority of the voting shares.
Tap stock Government stock offered for sale by the Government, sometimes to influence the price.
Tender An issue of stocks or shares where prospective buyers specify the price they are willing to pay. The shares are then offered to the highest bidders.
Traded option See Options.
Underwriter Someone, usually a city institution, who agrees to buy any shares in a new issue not purchased by the public.
Unit trust A portfolio of various investments divided into units and managed by professionals. The value of the units does not depend on supply and demand but on the underlying value of the portfolio.
Unsecured loan stock A fixed interest stock from a company which is not secured by assets. .
Warrant A negotiable right to subscribe for stocks or shares at some time in the future. Similar to an option but used by companies to raise money.
Yearlings Bonds issued for twelve months mostly by local authorities.
Yield The gross dividend expressed as a percentage of the share price.
Shares A Beginners Guide to Making Money Contents