Money, Stocks, Shares and Trading

posted by admin on May 9

Please be aware that this list is not exhaustive

Agent – any person who acts on behalf of another.

AGM – annual General Meeting. A meeting of shareholders and the board of the company to accept the Report and Accounts and vote on such things as director reappointment.

Alternative Investment Market (’AIM’) – a share trading mechanism established and regulated by the London Stock Exchange.

Bid-Offer Spread – this is the difference in price between the Market Makers best offer to purchase shares from you (‘Bid’) and the best offer to sell shares to you (‘Offer’) in a particular screen quoted Market Size.

Bid Price – the price shown by a ‘Market Maker’ at which an investor may sell shares, so long as the number of shares does not exceed the indicated Market Size. The ‘Bid Price’ is not a guaranteed selling price when a transaction is in excess of (outside) Market Size.

Corporate Actions – a generic term for events such as Right Issues, Open Offers and Share Consolidations/splits. These events usually require shareholders to vote on the proposals at an AGM or EGM.

Dividend – a pro rata payout in cash based on an element of a company’s distributable profits. Dividend income is often expressed as the ‘Yield’.

Earnings Per Share – the profit of a company, after tax, divided by a weighted average number of shares the company had in issue during the accounting period.

EGM – Extraordinary General Meeting. Where a shareholder meeting is called and voting required on an event that is outside of the day-to-day organisation and running of the firm, such as approving a share issue or acquisition.

‘Execution Only’ transaction – if you instruct City Equities to buy or sell shares on your behalf without any advice, this is deemed to be ‘Execution Only’.

Gearing – A ratio between a company’s borrowing and its share capital, or shareholders’ funds, which is expressed as a percentage. High gearing means a proportionately high level of debt and vice versa.

Holding Company – a company that controls one or more other companies.

Liquidity – the degree of ease with which an asset can be turned into cash. A ‘liquid market’ is one with many buyers and sellers where dealing is usually easier and the shares have a narrow ‘Bid-Offer Spread’.

Market Capitalisation – the value of a company calculated by multiplying the number of shares in issue by the ‘Mid-Price’ of the share.

Market Maker – a person employed by a company that is prepared to buy and sell shares at prices determined by them. The market makers also determine the ‘Market Size’ and ‘Bid-Offer Spread’.

Market Size – an indicated number of shares in which a Market Maker is willing to make a transaction at the ‘Bid’ and ‘Offer’ prices that they are quoting. Market Size is subject to constant change and may affect your ability to trade.

Mid-Price – the mid-point between the Bid and Offer prices. This is used for many valuation and ratio calculations and is the price shown when companies are featured in newspapers such as The Financial Times.

Net Asset Value – the assets of a company, minus its liabilities, divided by the number of shares in issue.

Nominal Value – the value of a security as printed on a share certificate, for example ‘Ordinary 10p shares’. Also called ‘par value’ or ‘face value’, the measure has, however, no bearing on the actual price of a share in the open market.

Offer Price – the price shown by a Market Maker at which an investor may buy shares, so long as the number of shares does not exceed the indicated Market Size. The Offer-Price is not a guaranteed buying price when a transaction is in excess of (outside) Market Size.

Open Offer – see ‘Rights Issue’.

Option – an instrument that gives its holder the right to purchase shares (new or existing shares held by a third party) in a company at a set price, normally before a specific date. Options can be transferable, but unlike Warrants, they would not have their own exchange list.

Placing – a method of raising money for a company. Usually, a placing is effected by institutional subscription to a new share issue, which is not open to the general public.

Price/Earnings Ratio (P/E Ratio) – a simple valuation measure that gives the investor a guide to how profitable a company is, compared to its market value. The ratio is derived by dividing a company’s share price by its reported (or predicted) earnings per share. A high ratio may mean that the market considers the company to have strong growth prospects and is therefore highly valued compared to the amount of profit that it actually makes. Alternatively, a low ratio can reflect market scepticism about the likelihood of a company sustaining growth in future points.

Rights Issue – a way of raising money from its existing shareholders, perhaps to fund an acquisition. A Rights Issue takes the form of a pro rata offer of shares, usually at a discounted price to make it attractive for people to take up. Existing shareholders will have an allocation of Rights Issue shares that they can elect to take up or sell ‘nil paid’ in the market, if there is a premium available (i.e. if the prevailing share price remains higher than the Rights Issue price). They may even take no action and ‘let the issue lapse’ in the hope that, at the end of the process a buyer or underwriter is found who is willing to take up the ‘rump’ of the Issue at a higher level than the Rights Issue price. In this case, the existing shareholder could receive the difference in price in cash on a pro rata basis.

An Open Offer specifically differs from a Rights Issue in that the existing holder has only two choices: To take up the offer or ignore it. There is no potential premium paid if a holder elects to lapse their Open Offer entitlement.

Share Consolidation/Split – an event that takes place when a company wants to rebase its share capital. A 10-for-1 Consolidation, for example, would notionally move the share price up tenfold, but reduce an individual’s holding by a factor of ten. However, the individual’s shareholding by way of a percentage of the company in question remains unchanged. The opposite of a Consolidation is a Split. A Consolidation or Split could be undertaken to make the shares more attractive to trade by a wider body of investors.

Warrant – an instrument that gives its holder the right to purchase new shares in a company at a set price, normally before a specific date. Warrants can sometimes be listed as tradable, the feature being that their gearing (or leverage) against the price of underlying share, is usually much greater. Traded warrants are, consequently, very high risk/high return instruments.

Yield – the annual income from a share based on its current price. Yield for an individual investor will depend on the price they have paid for the share.