Glossary of Terms

Aim

The Alternative Investment Market, an official Stock Exchange market for investors seeking investment opportunities in smaller, and usually, higher risk entities. Not available as a CFD.

Arbitrage

Basically this is the art of buying something cheap in one place and selling it at a profit somewhere else. The rise of global electronic trading has made this process much faster and easier, enabling arbitrageurs - as they're called - to switch huge sums of money across continents in seconds in an attempt to exploit small differences in the quoted prices of investments in different markets - foreign currency, for example. In share trading, so-called risk arbitrageurs attempt to make profits from the usual share price movements of companies that are in takeover situations. These investors will simultaneously buy stock in the target company, whose share price normally rises, while selling that of the bidder, whose share price normally falls. They will also invest in the target company if they think there's a chance the bidder will have to raise the offer price.

Ask

The lowest price at which someone will sell an investment at a given moment.

Bargain

Stockbroker jargon for a share transaction.

Bear

An investor who is negative towards shares, believing prices will fall. A Bear market is one where share prices across the entire market are generally, and consistently, falling.

Bid-Offer Spread

The difference between the buying price (bid) and selling price(offer).

Blue Chip

The term used to define a company regarded as being a solid, and consequently safe, investment. The company will almost certainly be large, well established and profitable, but be conservatively managed.

Bull

An investor who is positive towards shares, believing prices will rise. A Bull market is one where share prices across the entire market are generally, and consistently, rising.

Bullion

Gold, silver, platinum, or palladium, in the form of bars or ingots.

Closed Position

An equal and opposite transaction, i.e. buying 1000 BT shares then selling 1000 BT shares, the position will be automatically closed.

Closing Price

The closing price is the last price for a tradable instrument at the time the market closes.

Commodity

A physical substance, such as food, grains, and metals, which is interchangeable with another product of the same type, and which investors buy or sell, usually through futures contracts.

Contingent Order

An order which is to be executed only if another order is executed first. An example of a contingent order would be to sell one specific security if another specific security has been bought.

Contracts for Difference (CFD's)

CFD means Contract for Difference. They were developed to allow clients to receive all the benefits of owning a stock without having to physically own the stock. In other words you cannot take delivery of a CFD so you have to settle the difference between where you bought the contract and where you sold it. The difference is either profit or loss.

Corporate Action

Any event initiated by a corporation which impacts its shareholders. For some such events, shareholders may or must respond to the corporate action or select from a list of possible actions. Examples of corporate actions include dividend payments, mergers, rights issues and stock splits.
(See: Dividend, Stock Split, Rights Issue and Consolidation)

Controlled Risk Bet (CRB)

A Controlled Risk Bet (CRB) is sometimes known as a guaranteed Stop loss order and can be placed on a range of instruments that we offer. A CRB allows you to open a specific bet and attach to it a guaranteed Stop loss order at a price you are prepared to be stopped out. Therefore you have a known ‘worse case scenario' should the market move against you, and you have a defined loss you are prepared to accept on that trade.

Day Order

The order placed will be active, i.e. pending, until the end of the day, or until it has been executed.

Dividends

That part of a company's profit after tax which is distributed to shareholders.

Execution Only Stockbrokers

Those stockbrokers who offer clients, usually, an inexpensive trading facility with no advice, research or recommendations as to investment style or policy.

Financing Costs

CFD Share positions carried overnight will incur financing costs for the full consideration of the position. If a client opens a position with a 5% margin, finance overnight will be on the 100% balance. Clients who are long a CFD will pay interest to CMC, clients who are short may receive interest from CMC.

FSA

The Financial Services Authority. The regulatory authority responsible for the conduct of brokers and dealers in securities, options share CFD's and futures.

Future

A standardized, exchange-traded contract that requires delivery of a commodity, bond, currency, or stock index, at a specified price, on a specified future date. Unlike options, futures convey an obligation to buy.

GTC - Good Till Cancelled

An instruction to a broker that unlike normal practice the order does not expire at the end of the trading day. The order placed will remain active until it is either executed or cancelled.

Hedging

A way of reducing the risk of losses that may occur if interest rates, share prices or foreign exchange rates move in the wrong direction. This usually involves the use of CFD or futures contracts.

Illiquidity

The difficulty of changing your assets in cash because of a lack of demand for whatever it is you're trying to sell. See Liquidity. As a market maker RBS Spread Trading provide liquidity by constantly quoting a bid and offer spread.

Index

A statistical indicator providing a representation of the value of the securities which constitute it. Indices often serve as barometers for a given market or industry and benchmarks against which financial or economic performance is measured.

LIBOR

The London Interbank Offered Rate, the rate charged by one bank to another for lending money.

Limit Order

An order to buy or sell a share at a specific price. The order will only be carried out by the broker at that price, or a better one. If the broker can't fulfil the limit order, it lapses.
Liquidity The level of continual buy and sell activity making up the market demand for the shares and indicating the ease with which investors can undertake transactions.

LIBOR

The London Interbank Offered Rate, the rate charged by one bank to another for lending money.

Long

Buying an investment with a view of the investment going up (opposite of short).

Margin Requirements

Investors are asked to deposit a small percentage of the overall cost that would be required if they were to purchase the equivalent shares in the physical market. Even though the CFD investor's outlay is small in comparison to the equivalent physical trade, the investor will still be exposed to the same potential profit and loss. This means that your potential Return on Investment is magnified.

Mark-to-market

The daily adjustment of an account to reflect accrued profits and losses often required to calculate variations of margins.

Market Capitalisation / Mkt Cap

Market capitalisation is the number of shares in issue multiplied by the share price at the time the market capitalisation was calculated.

Mid Price

The mid point of the bid / offer spread quoted by the market makers. The price shown in the share price pages and market reports within the financial media, but not the price at which you could necessarily expect to conclude a deal to buy or sell. The price at which you buy will be higher and the price at which you sell will be lower than the mid price in almost all circumstances.

New Issue

A company that is floated on the stock market for the first time. Offering shares to the investment public is a way of raising capital for further expansion. Also known as the Initial Public Offering (IPO).

OCO - One Cancels the Other

If you place a sell limit and a sell stop order in the same stock at the same time. When either order is executed the other will automatically be cancelled. Also applies to a buy limit and buy stop order.

Option

The right, but not the obligation, to buy (call option) or sell (put option ) a specific amount of a given stock, commodity , currency, index, or debt, at a specified price (the strike price) during a specified period of time.
For the holder, the potential loss is limited to the price paid to acquire the option. When an option is not exercised, it expires. No shares change hands and the money spent to purchase the option is lost. For the buyer, the upside is unlimited. For the writer, the potential loss is unlimited unless the contract is covered, meaning that the writer already owns the security underlying the option.
There are two types of options: American style and European style. American options can be exercised at any time between the purchase date and the expiry date and European options can only be exercised on a single day, usually its expiry date.

Out of Hours Trading

RBS Spread Trading will allow clients to trade selected major stocks and indices outside the normal trading hours.

Order Book

Introduced on 20 October 1997. FTSE 100 stocks are traded on an electronic order book (inside the SEAQ quote system). When bid and offer prices match, new incoming orders are automatically against orders on the book.

Open Position

A long or short position which has not been closed out by an equal and opposite position.

OTC (Over The Counter)

A market conducted directly between dealers and principals via a telephone and computer network rather than a regulated exchange trading floor.

Portfolio

A collection of securities owned by an investor.

Rights Issue

An additional issue of shares by the company to existing share holders and at an advantageous, discounted, price. A means for the company to raise new funds for further development or to finance a new acquisition for cash. A two for five rights at 145p means that the existing shareholder has the right to acquire a further two shares for every five currently held at a new cost of 145p per share acquired.

Sector

A distinct subset of a market whose components share similar characteristics. Stocks are often grouped into different sectors depending upon the company's business. For example the FTSE 100 has banking, oil and gas and pharmaceutical sectors.

Selling Short

This is practice of selling shares that you do not own in the hope that the share price falls before you have to settle the contract. If the price does fall you can then buy the shares at the lower price and pocket the difference.

Spread Betting

A type of bet that gives investors the chance of making unlimited winnings (and losses), in contrast to the conventional fixed-odds type of bet, where the potential winnings and losses are known before the event. They generally quote spreads wider than the market. Share CFD's are a more sophisticated way of trading.

Stockbroker

An exchange member firm which provides advice and dealing services to the public as well as trading on its own account.

Stop order

An order to sell at a limit for which the specified price is below the current market price.

Treasury

A bond issued by Government. Bonds issued by the UK government are called gilt edged stock , commonly referred to as gilts.

Underlying

Is the security or commodity that is delivered or being traded when dealing in futures or options.

Volatility

How quickly the price of a security rises and falls over time. A highly volatile share can be risky for short-term investors who stand a greater chance of buying at a peak and selling in a trough at a loss.

Yield

The return earned on an investment taking into account the annual income and its present value. There are a number of different types of yield, and in some cases different methods of calculating each type.