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.
- Indicator signalA formal event inside a calculation: lines crossing, a boundary of the scale being passed, a sign changing.
- Indirect methodBuilding the cash flow statement from net profit: non-cash charges are added back and the movement in working capital is adjusted for.
- Indirect quoteA way of writing a rate in which the domestic currency is priced in a foreign one.
- Individual investment account (IIA)A Russian brokerage account with a special tax regime, granted in exchange for keeping the money invested for a minimum term.
- Industrial productionAn index of the physical volume of output from mining and manufacturing.
- InflationThe erosion of money's value through a rise in the general price level.
- Inflation expectationsThe price growth households and businesses expect in the near future.
- Inflation riskThe risk that fixed payments lose value faster than was assumed at purchase.
- Inflation targetingA monetary regime in which the central bank publicly names an inflation goal and subordinates the policy rate to it.
- Inflation-linked OFZA Russian government bond whose face value is indexed to inflation.
- Inflation-linked bondA bond whose principal is indexed to inflation.
- Information ratioHow consistently a benchmark is beaten: the excess return over the index divided by the dispersion of that excess.
- Infrastructure bondAn issue funding roads, networks, housing and utilities, where payments come from the project's future revenue or from budget support.
- Infrastructure riskThe risk that an asset becomes unreachable because of a failure in the chain that records ownership.
- Initial marginThe collateral posted against a position on the derivatives market.
- Initial public offering (IPO)A company's first public sale of shares on an exchange.
- Inside informationPrecise undisclosed information whose publication is capable of materially affecting the price of a security.
- Insider dealingTrading, or recommending trades, on the basis of undisclosed information: an offence rather than an advantage.
- Insider listThe register of persons with access to an issuer's undisclosed information, kept by the issuer and supplied to the regulator and the exchange.
- Intangible assetsAssets without physical form: licences, trademarks, internally built software, rights to develop deposits.
- Interest coverageOperating profit divided by interest expense.
- Interest expenseThe cost of servicing debt.
- Interest rate corridorThe bounds within which the central bank keeps money-market rates: the rates of its own lending and deposit operations.
- Interest rate parityThe rule by which the difference between two currencies' interest rates is built into the forward rate.
- Interest rate riskThe risk of loss from a change in the level of rates: the payments on the bond are fixed, the yield the market demands is not.
- Interest rate swapAn exchange of payments: one side pays a fixed rate, the other a floating one, both calculated on a common notional amount.
- Interested-party transactionAn operation in which a person able to influence the company's decisions has an interest on the other side of it.
- Interim dividendA payout for a quarter or half-year rather than for the full year.
- Interim financial statementsAccounts for part of a year — a quarter or a half-year. Prepared under reduced requirements and usually not fully audited.
- Internal rate of returnThe rate at which the present value of a project's flows equals the investment: the return built into the project itself.
- International reservesThe currency assets and gold held by a country's central bank.
- Interval fundA fund that accepts purchase and redemption orders only during windows announced in advance; between them there is no way out of the fund.
- Intragroup transactionsSales and debts between companies of the same group. They are eliminated on consolidation so that the group cannot earn from itself.
- InventoryRaw materials, work in progress and finished goods on the balance sheet.
- Inventory turnoverHow quickly stock turns into goods sold: how many times it was replaced over the period, or how many days it sat in the warehouse.
- Inverse futuresA contract priced in one currency while collateral and profit are counted in the underlying asset.
- Inverted yield curveA situation in which short-dated yields exceed long-dated ones.
- Invested capitalThe money put into the business and working inside it: equity plus debt, less cash balances not employed in operations.
- Investing cash flowCash spent on acquiring assets and investments, or received from selling them: capital expenditure, business purchases, deposits.
- Investment gradeThe boundary below which an issue counts as speculative; it decides who is permitted to hold the bond at all.
- Investment horizonThe point in time at which the invested money will be needed.
- Investor calendarA view of upcoming events: record dates, earnings releases, rate meetings.
- Investor suitability testA check, required under Russian rules, that a non-qualified investor understands an instrument before buying it.
- Irrevocable put offerThe issuer's undertaking to buy the bond back on a named date at a stated price, which it cannot withdraw.
- IssuanceBringing securities into circulation.
- Issue dateThe day an issue passes from the issuer to its first holders and begins to exist as a tradable security.
- Issue guaranteeAn undertaking by a third party to pay on the issue if the issuer has not.
- Issue liquidity riskThe risk of being unable to sell a bond when needed without a noticeable concession in price.
- Issued sharesShares actually placed and taken up by holders; these are the ones carrying votes and the right to a distribution.
- IssuerThe legal entity that issued a security.
- Issuer bond buybackThe issuer purchasing its own bonds in the market or through a targeted offer, without redeeming the issue.
- Issuer callThe issuer's right to redeem the issue early.
- Japanese asset price bubbleThe simultaneous surge in Japanese share and land prices through the second half of the 1980s, which ended in 1990.
- Kelly criterionA formula for the share of capital to put on one bet that maximises long-run growth: size follows from the edge in probability rather than from the strength of conviction.
- Key rateThe rate at which the central bank lends to commercial banks.
- Key rate durationA breakdown of portfolio sensitivity across sections of the curve: how much is lost when the short section moves, and how much when the far one does.
- LNGNatural gas chilled into liquid form so that it can be carried by ship.
- Lagging indicatorAn indicator whose value is derived entirely from prices that have already happened, so it changes after the movement does.
- Last day to buyThe final date on which buying a security still earns the upcoming payout.
- Last trading dayThe final day on which a contract trades before it moves to settlement.
- Leading indicatorAn indicator that changes before price does, because it measures the rate of change rather than the price itself.
- Lease liabilityThe present value of future lease payments, recognised on the balance sheet as debt.
- Lehman Brothers bankruptcyThe failure of the US investment bank in September 2008 — the largest bankruptcy in American history.
- Lender of last resortThe central bank's role of supplying liquidity to a solvent bank when no one else will lend to it.
- LeverageThe ratio of position size to the investor's own funds.
- Levered betaA company's beta as it stands, debt included. The more debt, the more strongly the shareholder's profit reacts to a move in the market.
- Limit expansionThe exchange moving the boundaries of the price corridor when the price rests against a limit.
- Limit orderAn instruction to trade at a stated price or better.
- Limits of diversificationThe point past which adding names barely reduces portfolio dispersion: issuer-specific risk has already been cancelled and what is common to all of them remains in full.
- Liquid portfolio valueThe valuation of those client assets a broker accepts as collateral for margin positions.
- Liquidation entitlementWhat a shareholder receives on the liquidation of a company after all creditors have been settled with.
- Liquidation valueWhat a company's assets would raise in a rapid sale.
- LiquidityThe ability to sell an asset quickly without a meaningful loss in price.
- Liquidity horizonThe time needed to close a position without conceding materially on price.
- Liquidity riskThe risk that a position cannot be closed at a sensible price when it needs to be: either no buyer is there, or the buyer wants a visible discount.
- List of entitled shareholdersThe list of holders drawn up on a date set by the meeting; the payment is addressed to whoever appears on it.
- ListingThe procedure admitting a security to organised trading.
- Listing tier changeAn exchange moving a security into a different quotation list, one with stricter or looser requirements than before.
- Lock-upThe period after an offering during which large shareholders are barred from selling.
- Logarithmic scaleA price axis on which equal distances correspond to equal relative changes rather than equal absolute ones.
- Lombard listThe list of securities the central bank accepts as collateral in its own operations.
- London Metal ExchangeThe principal world venue for trading industrial metals and the warehouse stocks behind them.
- Long-term holding reliefExemption from tax when a security has been held longer than the required period.
- Long-term ownership reliefA Russian tax relief that exempts gains from tax once a security has been held long enough.
- Look-ahead biasA testing error in which information that became known later enters a calculation dated earlier: revised accounts, the closing price of the day, the new composition of an index.
- Loss aversionThe tendency to feel a loss more keenly than a gain of the same size.
- Loss carryforwardUsing losses from earlier years to reduce the current year's tax.
- Loss offsettingReducing taxable profit by losses within the same tax base.
- Lost decadeThe stagnation in Japan after 1990: weak growth, falling prices, and an equity market that did not return to its earlier levels for years.
- Lot sizeThe smallest number of securities that can be traded in a single order.
- Low volatility anomalyThe observation that securities with a narrower price range returned no less, and at times more, than riskier ones — which contradicts the idea of payment for risk.
- MACDAn indicator of convergence and divergence of moving averages.
- MOEX Russia IndexThe main rouble-denominated index of the Russian equity market.
- MSCI Emerging Markets IndexThe equity index of developing countries along which global funds distribute capital.
- Maintenance capital expenditureThe part of capital spending needed simply to keep the business running at its current scale: replacing equipment, repairs, sustaining capacity.
- Maintenance marginThe collateral level below which a position counts as underfunded and becomes liable to closure.
- Major transactionA transaction whose size relative to the company's assets requires approval by the board or by the shareholder meeting.
- Majority shareholderThe holder of a stake large enough to control the company's decisions.
- Mandatory tender offerThe duty of a party that has acquired a large stake to offer the remaining holders a purchase of their shares at a price derived under statute.
- March 2020 crashThe rapid fall in world markets at the start of the pandemic, during which liquidity vanished even in the safest instruments.
Showing 100 of 1109← Back to the startMore terms →