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.
- Operating segmentA part of the business management takes decisions on and receives separate reporting for: a division, a region, a product line.
- Operational riskThe risk of losing money to a broken process rather than to a price move: a mistyped order, a dead terminal, an unreachable broker, a corporate action processed wrongly.
- OptionA contract giving the buyer the right, but not the obligation, to transact at a predetermined price.
- Option exerciseActing on the right an option carries: the holder claims the position or the asset at the strike.
- Option intrinsic valueThe part of the premium the option would be worth if it were exercised immediately.
- Option on futuresAn option whose exercise hands the holder a futures position rather than the asset itself.
- Option premiumThe price of the option itself, paid by the buyer to the seller.
- Option time valueThe premium above intrinsic value, paid for the movement that is still possible before expiry.
- Order bookThe table of live buy and sell orders together with their volumes.
- Order book depthThe total size of orders resting at successive price levels on both sides of the book.
- Order imbalanceA marked excess of resting size on one side of the book relative to the other.
- Order priorityThe rule that decides the queue: the better price goes first, and among equal prices the order submitted earlier goes first.
- Ordinary-preferred spreadThe price difference between an issuer's ordinary and preferred shares.
- OscillatorAn indicator whose values swing within a bounded range and describe where price sits relative to its recent span.
- Other comprehensive incomeIncome and expenses that move equity while bypassing net profit: revaluations, currency translation, part of hedging.
- Other income and expensesEverything outside the core business: disposals of property, fines, currency effects, write-offs, one-off compensation.
- Out of the moneyThe state in which exercising the option right now would make no sense.
- Out-of-sample testTrying rules on a stretch of data that was not used while they were being tuned.
- Output gapThe distance between actual and potential output: positive means the economy is running above its sustainable level, negative means slack.
- Overbought and oversoldStates in which an oscillator has passed conventional boundaries of its scale — the 30 and 70 levels of the relative strength index, for instance.
- OverconfidenceOverestimating the accuracy of your own forecasts and knowledge.
- OverfittingTuning rules until they describe one particular stretch of the past with almost no error.
- Overnight position carryRolling a margin position into the next trading day through repo transactions between client and broker.
- OversubscriptionThe situation where orders collected exceed the size of the issue.
- OvertradingTrading more often than one's own rules require: the activity feels like work, and the portfolio pays for it in spread, commission and tax events.
- P/B (price to book)Share price over the book value of equity per share.
- P/E (price to earnings)Share price over earnings per share: how many years of profit the market is paying for the company.
- P/S (price to sales)Market capitalisation divided by revenue.
- PEG ratioThe price-to-earnings ratio divided by the earnings growth rate.
- Pairs tradingBuying one security and selling a related one at the same time, betting on their diverged prices converging rather than on the market going anywhere.
- Paper trading accountA simulation of trading without real money.
- Par value of a shareThe accounting value of one share recorded in the articles; share capital is built from it, and it has almost nothing to do with the price on screen.
- Parabolic SARAn indicator plotting dots at a level that trails the price and accelerates as the movement continues.
- Partial fillThe case where contra size covered only part of an order and the remainder stayed in the queue.
- Passive managementReplicating an index rather than trying to beat it.
- Payback periodThe time it takes for cumulative receipts to cover what was invested.
- Payment through a nomineeThe route by which money travels from the issuer to the depository, then to the broker and only then to the holder's account.
- Payout ratioThe share of profit or cash flow directed to dividends.
- Peer groupThe set of companies a valuation is compared against by multiples.
- Performance feeThe part of a manager's pay tied to results above an agreed level: a share of the excess rather than of the size of the fund's property.
- Perpetual bondAn issue with no maturity date: the coupon runs indefinitely, and the only way to get the principal back is to sell the bond to somebody else.
- Perpetual futuresA contract with no expiry date: the position lives as long as collateral holds out.
- Personal income tax (NDFL)The Russian tax on individuals' income, including gains on securities and dividends.
- Phillips curveThe observation that low unemployment comes with faster price growth and high unemployment with slower.
- Physical deliverySettlement by handing over the underlying asset itself rather than by paying a difference in cash.
- Pivot pointsA set of computed levels derived from the high, the low and the close of the previous period.
- Placement allocationThe share of an order actually filled: under oversubscription the arranger satisfies orders partially and at its own discretion.
- Planning fallacyThe systematic underestimation of the time and money a goal will take.
- Platinum group metalsPlatinum, palladium and their relatives, whose demand is set by industry rather than by investors.
- Portfolio betaThe sensitivity of a whole portfolio to market moves: the betas of its holdings weighted by their shares.
- Portfolio concentrationThe degree to which a result depends on a single asset or factor.
- Portfolio credit qualityA summary assessment of the reliability of the issuers held, usually expressed as a distribution across rating steps.
- Portfolio durationThe weighted average duration of the issues held, where the weight is each position's share of market value.
- Portfolio insuranceA technique of the 1980s: portfolios were protected not by buying options but by selling futures automatically as the market fell.
- Portfolio returnThe change in a portfolio's value accounting for deposits and withdrawals.
- Portfolio stress testAn assessment of how a portfolio behaves under a predefined adverse scenario.
- Portfolio turnoverThe share of a portfolio replaced by trades over a period. It shows how often the composition is rewritten and sets the size of the costs directly.
- Position carry feeThe broker's charge for keeping an uncovered position open overnight.
- Position limitThe maximum number of contracts in one series that a single participant may hold.
- Position sizeThe share of capital committed to a single trade.
- Position weightA position's share of total portfolio value.
- Post-pandemic inflation waveThe acceleration of world inflation after the pandemic, when supply disruption, postponed demand and dearer energy overlapped.
- Potential outputThe level of output an economy can sustain at normal capacity use and normal employment without pushing prices up.
- Pre-emptive rightThe right of existing shareholders to buy new shares in proportion to their holding.
- Precedent transactionsValuation from the multiples of completed acquisitions of similar companies rather than from the quotes of listed peers.
- Preferred shareA share with priority in dividend payment and, usually, no voting right.
- Preferred share conversionExchanging preferred shares for ordinary ones at a ratio fixed in advance, where the articles allow it.
- PremiumA price sitting above a reference point.
- Premium or discount to NAVThe gap between a fund unit's exchange price and its net asset value per unit.
- Present valueToday's worth of a future amount: money tomorrow is worth less than money today, and the discount rate sets the difference.
- Price alertAn automatic message sent when a security reaches a level you set.
- Price as a percentage of parThe convention for quoting a bond: the price is shown as a share of par rather than as a sum of money.
- Price capA restriction under which buyers and carriers agree to handle a commodity only below a set price.
- Price channelA pair of parallel lines between which the price stayed over a chosen stretch of history.
- Price gapA break in the chart: the opening price differs markedly from the previous close.
- Price limitThe boundary beyond which a contract's price is not allowed to move during a session.
- Price stabilisationPermitted purchases of a newly placed security by the organiser during the first days of trading, smoothing sharp moves in the quote.
- Price to free cash flowMarket capitalisation divided by free cash flow: how many years of that flow, on unchanged terms, would repay the price of the company.
- Price zoneA band of prices where trading was especially dense — a more honest notation than a single line of support or resistance.
- Price-yield relationshipThe basic property of a bond: its payments are fixed, so a rise in price automatically means a fall in yield, and the other way round.
- Primary listingThe main venue on which a security has been admitted and whose rules govern its trading.
- Primary marketThe placement of securities where the issuer itself receives the money.
- Principal indexationThe mechanics of an inflation-linked bond: the principal is restated in line with the consumer price index, and the coupon is calculated on the already indexed amount.
- Private placementAn issue of new shares to a predetermined circle of subscribers.
- Probability of defaultAn estimate that an issuer will fail to meet its obligations within a stated period.
- Producer price indexThe change in prices charged by producers — before the goods reach a shop counter.
- Profit attributable to owners of the parentThe part of group net income belonging to the shareholders of the parent, after the share of non-controlling interests in subsidiaries.
- Profit before taxThe company's result after interest on its debt but before income tax.
- Profit repatriationBringing money earned abroad back to the owner's country — as dividends, interest or sale proceeds.
- Property, plant and equipmentBuildings, machinery, vehicles and other long-lived property the company uses in its work rather than resells.
- ProspectusThe document disclosing the terms of an issue and information about the issuer.
- Protective putBuying a put against an asset already held in the portfolio.
- ProvisionsAmounts set aside against expected losses or obligations.
- Public subscriptionAn issue of new shares offered to an unrestricted circle of subscribers.
- PullbackA move against the prevailing direction after which the prevailing direction resumes.
- Purchasing Managers' IndexA summary of purchasing managers' answers about orders, output, inventories and hiring, built around the dividing line between growth and contraction.
- Purchasing power parityThe idea that an exchange rate should equalise the cost of the same basket of goods across countries.
- Put date (offer)The right, or the obligation, to present a bond to the issuer for early redemption.
- Put offer riskThe risk of staying in an issue on whatever terms the issuer sets after the coupon reset.
- Put optionThe right to sell the underlying asset at the strike price.
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