Investor's glossary: financial terms in plain English
Stock market terms with the formula, the calculation method and a list of pitfalls. Every multiple is explained once and surfaces as a tooltip.
- Business cycleThe recurring sequence of expansion, overheating, contraction and recovery.
- Butterfly spreadA structure built from options at three strikes that pays most when the price sits at the middle one.
- Buy and holdHolding assets for the long run without trying to time market moves.
- BuybackA company purchasing its own shares on the market.
- Buyback on delistingThe company's duty to repurchase shares from holders who voted against removing the security from the exchange, or did not vote at all.
- Buyback programmeAn announced corporate decision to repurchase own shares, stating a maximum volume and a period.
- CAGRThe constant annual rate that would produce the same result over the period.
- CSI 300An index of the largest companies traded on the Shanghai and Shenzhen exchanges.
- Calendar anomaliesPatterns in returns tied to dates: how a market behaves at month boundaries, ahead of long weekends, in particular months of the year.
- Calendar rebalancingReturning weights to target on dates fixed in advance — quarterly, half-yearly or annually — regardless of how far the portfolio has drifted.
- Calendar spreadOpposite positions held at the same time in different series of one contract.
- Call optionThe right to buy the underlying asset at the strike price.
- Call riskThe risk of receiving the principal ahead of schedule and having to place the money on worse terms.
- Calmar ratioAnnual return divided by the largest drawdown over the same period: how much was earned per unit of the most painful decline.
- Candle bodyThe rectangle between the opening price and the closing price of an interval.
- Candle wickThe strokes above and below the body marking the high and the low of the interval.
- CandlestickA way of showing a period's price through four values: open, high, low and close.
- Candlestick patternA recurring combination of candles credited with predictive meaning.
- Capital asset pricing modelA model linking an asset's required return to its sensitivity to the market: the risk-free rate plus beta times the equity risk premium.
- Capital controlsRules restricting the purchase, export or conversion of currency and cross-border transfers.
- Capital expenditureMoney invested in fixed assets: construction, equipment, modernisation.
- Capital outflowCapital leaving a country in excess of what enters: repayment of external debt, purchases of foreign assets, withdrawals by non-residents.
- Capitalisation-weighted indexAn index in which a security's weight is set by company size, adjusted for free float.
- Capture ratioA pair of figures showing how much of the market's rise a portfolio repeated and how much of its fall it took on.
- CarryWhat a position earns simply from the passage of time: accrued coupon less the cost of the money tied up in the bond.
- Carry tradeBorrowing in a low-rate currency and investing the proceeds in a high-rate one.
- Cash conversionThe ratio of cash flow to profit: how much of what was earned on paper reached the company's accounts.
- Cash conversion cycleHow many days pass between paying for materials and receiving cash from the customer. Throughout that gap the business funds itself.
- Cash flow statementThe statement of actual receipts and payments over a period.
- Cash ratioThe share of near-term obligations the company could settle today, out of cash and short-term investments.
- Cash settlementSettlement in money: the parties exchange the difference and the asset never changes hands.
- Cash-settled futureA contract settled in money, with no delivery of the underlying asset.
- Central counterpartyThe organisation that steps between the two sides of a trade and guarantees settlement.
- Central depositoryThe central depository where rights to most domestic securities are recorded.
- Centrally cleared repoA repo transaction in which the clearing organisation is the counterparty to both sides: it guarantees settlement and demands collateral.
- Change in accounting policyThe company starts measuring an item differently: recognising revenue at another moment, changing asset useful lives, reclassifying costs.
- Change in working capitalHow much cash the business tied up in inventory and receivables, or conversely released by stretching supplier terms.
- Change of controlA change in the party that determines a company's decisions — through a block trade, an offer or a reorganisation.
- Chart typeHow price movement is drawn: a line through closes, bars, or candles carrying four prices per interval.
- Charter minimum dividendA rule in the articles setting the floor for payments on preferred shares: a share of profit, a share of par value or another prescribed method.
- Clean priceThe price of a bond excluding accrued interest.
- ClearingThe netting of participants' mutual obligations ahead of settlement.
- Clearing brokerA clearing participant through whom a client's obligations reach settlement with the central counterparty.
- Clearing sessionA break in trading during which participants' obligations are settled and positions are updated for the preceding period.
- Client orderA client's instruction to trade: instrument, direction, quantity and the conditions of execution.
- Closed periodThe stretch before results are published during which employees and connected persons may not deal in the issuer's securities.
- Closed-end fundA fund with a fixed number of units created for a term: the management company is not obliged to redeem a unit early, and the way out is a sale to another holder.
- Closing auctionThe mechanism that sets the day's final price.
- Closing the dividend gapThe price returning to the level it held before the record date.
- Collapse of LTCMThe failure of a large US hedge fund in 1998, after the Russian default sent investors fleeing into safe securities.
- Collateralised debt obligationA security backed by a pool of loans and sliced into tranches with different priority of payment.
- CommodityA uniform good with commonly accepted quality parameters, traded through standardised contracts.
- Commodity cycleThe multi-year alternation of shortage and glut in raw materials, caused by the years it takes to bring new supply on stream.
- Commodity indexA measure that collapses the prices of a basket of raw materials into a single value.
- Commodity marketThe market for raw materials: energy, metals and agricultural products.
- Commodity seasonalityThe repeating annual swings in supply and demand that are tied to the calendar.
- Common shareA share carrying a vote and a right to dividends with no priority attached.
- Compound interestEarning a return on returns already received.
- CompoundingThe acceleration of capital growth as income is earned on income already received.
- Conditional value at riskThe average loss across those worst scenarios that fell beyond the value-at-risk threshold. It answers not where the line is, but how bad things get past it.
- Condor spreadA structure built from options at four strikes with a flat top to its payoff.
- Confirmation biasThe tendency to notice information that supports a decision already made.
- Consolidated accountsThe statements of a group of companies presented as a single entity.
- ConsolidationCombining the statements of a parent and its subsidiaries into one.
- Consolidation scopeThe set of companies whose accounts are combined into one: who is inside the group, from what date, and on what terms.
- Consumer confidence indexA survey measure of how households see their own finances and whether they are willing to make large purchases.
- Consumer price index (CPI)A measure of the change in the cost of a fixed basket of goods and services.
- ContagionThe transmission of trouble from one market participant to others through mutual obligations, shared collateral and forced selling.
- ContangoA situation in which the far-dated contract is more expensive than the near one.
- Contingent liabilitiesPossible future obligations that depend on an event that has not happened yet: a court ruling, a tax claim, a guarantee being called.
- Continuation patternA configuration describing a pause inside a movement after which the earlier direction resumed.
- Contract codeThe symbol that encodes both the underlying asset and the expiry of a futures contract.
- Contract specificationThe exchange document with an instrument's parameters: lot, tick, dates and settlement procedure.
- Contrarian investingBuying what the market has given up on and staying careful where agreement is unanimous: a bet that sentiment has run further than the facts.
- Contribution deduction (Russian IIA)A relief that refunds tax already paid on other income, up to the amount contributed to an individual investment account.
- Contribution planA predefined schedule and size for adding money to a portfolio.
- Control premiumThe addition to the price of a stake that carries the right to run the company: appoint management, set dividends, dispose of assets.
- Controlling stakeA holding of voting shares large enough to carry decisions that are taken by simple majority.
- Convertible bondA bond that can be exchanged for the issuer's shares on terms agreed in advance.
- ConvexityA correction to duration that accounts for the non-linear link between price and yield.
- Core inflationInflation stripped of its most volatile components — food and fuel.
- Core-satelliteA portfolio built from a large passive core and a few small active bets: the core determines the result, the satellites are capped by share.
- Cornerstone investorA large buyer who agrees to participate in a placement in advance and is disclosed before the book opens.
- Corporate actionAn event that changes a security's terms or the rights of its holder.
- Corporate bondA company's debt to the holders of the paper: it must pay the coupon and return the principal whether or not it earned a profit.
- Corporate governanceHow relations between holders, the board and management are arranged: who takes decisions and to whom they answer.
- Corporate governance codeA body of recommended governance practice: compliance is voluntary, explaining departures is not.
- CorrelationA measure of how closely two assets move together.
- Correlation matrixA table of pairwise relationships between the assets in a portfolio: it shows which positions duplicate each other and which live their own lives.
- Cost averagingBuying for the same amount at regular intervals.
- Cost capitalisationBooking spending as part of an asset's cost instead of as an expense of the period: it reaches the income statement gradually, through depreciation.
- Cost of carryThe full cost of owning an asset until settlement: money, storage and insurance, less any income the asset pays.
- Cost of debtThe rate at which the company could borrow today — not the average rate on loans it already has.
- Cost of equityThe return a shareholder demands for putting money into this business rather than into a risk-free asset.
- Cost of hedgingThe price of removing a risk: an option premium, the rate differential inside a currency forward, the cost of rolling a futures position and the upside given up on the hedged part.
- Cost of leverageThe price of money or securities borrowed from a broker: the overnight carry rate, the borrow fee and collateral that cannot be used for anything else at the same time.
- Cost of salesThe direct costs of what was sold: raw materials, production labour, depreciation of equipment, energy.
- Counterparty riskThe risk that the other side of a trade fails to perform: the security is not delivered, variation margin is not paid, a borrowed asset is not returned.
- Country riskThe risk of loss from what happens to the issuer's country rather than to the business itself: rules, taxes, restrictions, settlement.
- Country risk premiumAn addition for the risks of the jurisdiction the business operates in: legal, currency, sanctions, tax.
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