Trading
Acquisition – When one company decides to take over another one, it is referred to as an acquisition. The acquiring company will do this by purchasing either the majority or entirety of the ownership stake of the company being taken over.
ADR – An American Depositary Receipt (or ADR, for short) is a way in which US investors can trade shares of non-US companies without using their local exchanges.
Arbitrage in trading is the practice of simultaneously buying and selling an asset to take advantage of a difference in price. The asset will usually be sold in a different market, different form or with a different financial product, depending on how the discrepancy in the price occurs.
Alpha – the measurement of an investment portfolio’s performance against a certain benchmark –usually a stock market index. In other words, it’s the degree to which a trader has managed to ‘beat’ the market over a period of time. The alpha can be positive or negative, depending on its proximity to the market.
Ask/Bid – The ask refers to the price at which you can buy an asset or security from a seller. It can be variously referred to as ask, the ask, or asking price. / The bid is the amount a party is willing to pay in order to buy a financial instrument.
Averaging Down – When a trader purchases an asset, the asset’s price drops, and if the trader purchases more, it is referred to as averaging down.
Base Currency – The term base currency has two main definitions: the first currency quoted in a forex pair/stock, or the accounting currency used by banks and other businesses.
Base Rate – The interest rate that a central bank – such as the Bank of England or Federal Reserve – will charge commercial banks for loans. The base rate is also known as the bank rate or the base interest rate.
Basis Point – A unit of measurement used to quantify the change between two percentages – it can also be referred to as ‘bp’, which is pronounced ‘bip’ or ‘beep’. A basis point is equal to one hundredth of one percent, or 0.01%.
Bear Market – When the market is on a sustained downward trajectory, with little optimism from traders to bring about a rally, it is referred to as a bear market.
Bearish – Being bearish in trading means you believe that a market, asset or financial instrument is going to experience a downward trajectory. Being bearish is the opposite of being bullish, which means that you think the market is heading upwards.
Beta – A financial instrument’s beta is a measure of its risk or volatility when compared to the wider market.
Blue Chips – Blue-chip stocks are the shares of companies that are reputable, financially stable and long-established within their sector. Over time, the companies that are considered blue chip tend to change, so the exact definition of what is required for blue-chip status can be vague. However, a company that is considered blue chip will tend to be at or near the very top of its sector, feature on a recognised index, and have a well-known brand.
BoE – The Central Bank of United Kingdom, Bank of England.
Bollinger Bands – Bollinger bands are a popular form of technical price indicator. They are made up of an upper and lower band, set either side of a simple moving average (SMA). Each band is plotted two standard deviations away from the SMA of the market, and they are capable of highlighting areas of support and resistance.
Bonds – Bonds are a form of financial investment that involve lending money to an institution for a fixed period of time. They usually come in two varieties: corporate bonds and government bonds, depending on the type of institution you are lending to.
Bond Trading – Bond trading is one way of making profit from fluctuations in the value of corporate or government bonds. Many view it as an essential part of a diversified trading portfolio, alongside stocks and cash.
Book Value – While book value reflects what a business is worth according to its financials (its books), market value is the worth of a company according to financial markets – also known as its market capitalisation. The calculation for market value is the current market price per share multiplied by the total number of outstanding shares.
Bottom Line – Refer to the net earnings or earnings per share (EPS) of a business.
Brent Crude – One of three major oil benchmarks used by those trading oil contracts, futures and derivatives. The other two major benchmarks are West Texas Intermediate (WTI) and Dubai/Oman.
Broker – An independent person or a company that organises and executes financial transactions on behalf of another party. They can do this across a number of different asset classes, including stocks, forex, real estate and insurance. A broker will normally charge a commission for the order to be executed.
Bull Market – When a market, instrument or sector is on an upward trend, it is generally referred to as a bull market.
Buy – Buying a financial instrument means taking ownership of it from someone else, whether it is a commodity, stock or another asset.
Cable – The nickname of the GBP/USD currency pair. It represents the British pound against the US dollar, and it is one of the most popular pairs on the currency market.
Capital Gain – The profits made from the buying and selling of assets. They are made when traders sell assets – like shares or commodities – for more than they originally paid for them. The opposite of a capital gain is a capital loss.
Capital Loss – When a trader sells an asset at a lower price than they initially paid for it, they have incurred a capital loss. As such, capital loss is the opposite of capital gain: the profit made when an asset is sold for more than originally paid.
CFDs – Contracts for difference, or CFDs, are a type of financial derivative used in CFD trading. They are traded on leverage, which means that all trades have magnified profits and losses.
As a derivative, CFDs allow traders to speculate on market volatility without actually owning any of the underlying assets involved. That also means that assets can be both bought (going long) or sold (going short), and profits can be made from both bull and bear markets: though losses can be incurred also.
Chartist – A trader who relies predominantly on charts to help them understand a financial instrument’s historical price movements, in order to better predict and to speculate on its future performance. They are also commonly known as technical analysts, or technical traders.
Closing Price – The last level at which an asset was traded before the market closed on any given day. Closing prices are often used as a marker when looking at movements over a longer term. They can be compared to previous closing prices, or the opening price to measure an asset’s movement over a single day.
Commission – The charge levied by an investment broker for making trades on a trader’s behalf.
Commodity – A basic physical asset, often used as a raw material in the production of goods or services.
Cost of Carry – The amount of additional money you might have to spend in order to maintain a position. This can come in the form of overnight funding charges, interest payments on margin accounts and forex transactions, or the costs of storing any commodities on the delivery of a futures contract.
CPI – Consumer Price Index, an average of several consumer goods and services that are used to give an indication of inflation.
Crystallization – Selling an asset in order to realise capital gains or losses. When an investor buys an asset, any increase or decrease in the market price will not automatically translate to profit or loss – this is only realised after the position has been closed.
Currency Peg – A governmental policy of fixing the exchange rate of its currency to that of another currency, or occasionally to the gold price. It can sometimes also be referred to as a fixed exchange rate, or pegging.
Dark Pools – Dark pools are networks – usually private exchanges or forums – that allow institutional investors to buy or sell large amounts of stock without the details of the trade being released to the wider market.
Day Order – A day order is a type of order, or instruction from a trader to their broker, to buy or sell a certain asset.
Debt Ratio – An indication of how much debt a company is holding, when compared to the value of its assets. It can also be applied to individuals: in which case it is the cost accrued by their debt compared to total income each year.
Derivatives – Financial products that derive their value from the price of an underlying asset. Derivatives are often used by traders as a device to speculate on the future price movements of an asset, whether that be up or down, without having to buy the asset itself.
Direct Market Access (DMA) – A way of placing trades directly onto the order books of exchanges. As a result, DMA offers traders flexibility and transparency when trading. But due to the risks and complexities involved, it is usually recommended for advanced traders only.
Dividend – The portion of profit that a company chooses to return to its shareholders, usually expressed as a percentage. (eg. 4.1%)
Earnings Per Share (EPS) – An important metric in a company’s earnings figures. It is calculated by dividing the total amount of profit generated in a period, by the number of shares that the company has listed on the stock market.
EBITDA – A way of evaluating a company’s performance without factoring in financial decisions or the tax environment. The literal meaning of EBITDA is ‘earnings before interest, taxes, depreciation and amortisation’.
ECB – European Central Bank
EP – Entry Price, a pre-determined price level for the confirmation of a trading idea
Equity – In trading, equity can mean several different things. However it usually comes down to the ownership of an asset without any debt involved.
ETF – Stands for exchange traded fund, a type of investment security that is bought and sold on exchanges.
Execution – In trading, execution is the completion of a buy or sell order from a trader. It is carried out by a broker.
Exposure – In trading, exposure is a general term that can mean three things: the total market value of your trades at open, the total amount of possible risk at any given point, or the portion of a fund invested in a particular market or asset
Federal Reserve – Or the ‘Fed’ for short, is the central bank in charge of monetary and financial stability in the United States. It is part of a wider system – known as the Federal Reserve system – with 12 regional central banks located in major cities across the US.
Fiat Currency – A national currency that is not pegged to the price of a commodity such as gold or silver. The value of fiat money is largely based on the public’s faith in the currency’s issuer, which is normally that country’s government or central bank.
Fibonacci Retracement – A key technical analysis tool that uses percentages and horizontal lines, drawn onto price charts, to identify possible areas of support and resistance. Identifying these areas is useful to traders since it can help them decide when to open and close a position, or when to apply stops and limits to their trades.
Fill – Fill is the term used to refer to the satisfying of an order to trade a financial asset. It is the basic act of any market transaction – when an order has been completed, it is often referred to as ‘filled’ or as the order having been executed. However, it is worth noting that there is no guarantee that every trade will become filled.
FOMC – Or Federal Open Market Committee, is the branch of the Federal Reserve bank that is in charge of short and long-term monetary policy decisions.
Force Open – The ‘force open’ function on the trading platform allows you to enter a new trade in the opposite direction to an existing trade on the same market.
Fundamental Analysis (FA) – A method of evaluating the intrinsic value of an asset and analysing the factors that could influence its price in the future. This form of analysis is based on external events and influences, as well as financial statements and industry trends.
Futures Contracts – Represent an agreement between two parties to trade an asset at a defined price on a specified date in the future. They are also often referred to simply as ‘futures’.
GDP – Gross Domestic Product, or the total value of the goods and services produced in a country over a specified period. It is used as an indicator of the size and health of a country’s economy.
Gearing Ratio – Measurement used by investors to establish a company’s financial leverage. In this context, leverage is the amount of funds acquired through creditor loans – or debt – compared to the funds acquired through equity capital.
Gross Margin – A way of measuring the amount of profit a company can make from its revenue.
Hedge – A hedge is an investment or trade designed to reduce your existing exposure to risk. The process of reducing risk via investments is called ‘hedging’.
Heikin Ashi – A type of chart pattern used in technical analysis. Heikin Ashi charts are similar to candlestick charts, but the main difference is that a Heikin Ashi chart uses the daily price averages to show the median price movement of an asset.
Index (Indices) – In trading, an index is a grouping of financial assets that are used to give a performance indicator of a particular sector. The plural term is indices.
Intrinsic Value – A way of describing the perceived or true value of an asset. This is not always identical to the current market price because assets can be over- or undervalued. Intrinsic value is a common part of fundamental analysis, which investors use to assess stocks, as well being used in options pricing.
Investment Capital – A trader’s investment capital is the portion of financial resources they have available for trading. It could be in the form of money or other assets.
IPO – When a company embarks on an IPO (which stands for initial public offering) it goes public on a stock exchange. This can also be known as floating, flotation, or just ‘going public’.
Leverage – A concept that can enable you to multiply your exposure to a financial market without committing extra investment capital.
LIBOR – Or the London Interbank Offered Rate, is a benchmark that dictates daily interest rates on loans and financial instruments around the world.
Limit Order – A limit order is an instruction to your broker/platform to execute a trade at a particular level that is more favourable than the current market price.
Liquidity – Used in finance to describe how easily an asset can be bought or sold in the market without affecting its price – it can also be known as market liquidity. When there is a high demand for an asset, there is high liquidity, as it will be easier to find a buyer (or seller) for that asset.
Long – When used in trading, long refers to a position that makes profit if an asset’s market price increases. Usually used in context as ‘taking a long position’, or ‘going long’.
Margin – In trading, margin is the funds required to open and maintain a leveraged position.
Maintenance Margin – The amount that must be available in funds in order to keep a margin trade open. It is also known as the variation margin.
Margin Call – The term for when a broker requests an increase maintenance margin from a trader, in order to keep a leveraged trade open.
Margin Deposit – Deposit margin is the amount a trader needs to put up in order to open a leveraged trading position. It can also be known as the initial margin, or just as the deposit.
Market Capitalization – The total market value of a company’s shares on the market. It is often abbreviated to market cap. Market capitalisation is an easy way for investors to determine a company’s size, which can help to assess the risk of investing in its shares.
Market Data – Refers to the live streaming of trade-related data. It encompasses a range of information such as price, bid/ask quotes and market volume. Trading venues provide reports on various assets and financial instruments, which are then distributed to traders and firms. Market data is available across thousands of global markets, including stocks, indices, forex and commodities.
Market Maker – An individual or institution that buys and sells large amounts of a particular asset in order to facilitate liquidity.
Market Order – A market order is an instruction from a trader to a broker/platform to execute a trade immediately at the best available price.
Market Value – While the market value reflects what a business is worth according to market participants, book value reflects what a business is worth according to its financials (its books). The calculation for the book value of a company is its total tangible assets minus its liabilities.
Merger – When two or more companies decide to combine and become one entity, it is called a merger.
MACD – The moving average convergence/divergence (MACD) is a technical analysis indicator that aims to identify changes in a share price’s momentum. The MACD collects data from different moving averages to help traders identify possible opportunities around support and resistance levels.
Moving Average (MA) – A moving average is a common indicator in technical analysis, used to examine price movements of assets while lessening the impact of random price spikes.
Net Change – The difference between the closing price of the current trading session, compared to the closing price of the previous trading session. Net change can be positive or negative, as it represents whether the markets are up or down on the previous day.
Net Income -The total amount of profit (often known as earnings) made by a company, listed in its earnings report.
NFP – Non-farm payrolls are a monthly statistic representing how many people are employed in the US, in manufacturing, construction and goods companies. They can also be known as non-farms, or NFP.
Off Book Trade – Refers to the process of trading shares away from an exchange or regulated body. They are usually executed via the over-the-counter (OTC) market. Off-book transactions are made directly between two parties, outside or ‘off’ of the order books.
Offer Price – The term used when one trader expresses an intention to buy an asset or financial instrument from another trader or institution.
OBV – On-balance volume (OBV) is a form of technical analysis which enables traders to make predictions about future price movements based on the asset’s previous trading volume. OBV is mostly used in shares trading, because the volume has an especially large influence on the way share prices move.
OPEC – The Organisation of the Petroleum Exporting Countries. It was founded in 1960 by Saudi Arabia, Venezuela, Iraq, Iran and Kuwait. The other countries that have joined OPEC since are Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola, Equatorial Guinea and the Republic of the Congo – bringing OPEC’s membership to 14, as of January 2019.
Open – It can refer to the daily opening price of an asset class
Open Position – A trade which is still able to generate a profit or incur a loss. When a position is closed, all profits and losses are realised, and the trade is no longer active. Open positions can be either long or short – enabling you to profit from markets rising as well as falling.
Order – In trading, an order is a request sent to a broker or trading platform to make a trade on a financial instrument.
OTC – Over-The-Counter, and refers to a trade that is not made on a formal exchange. It is often also referred to as off-exchange trading.
Overexposure – The term used to describe the mistake of taking on too much risk. Typically, it’s when a trader makes the technical blunder of investing too much capital in a single position or market.
P/E Ratio – The price-to-earnings ratio, or P/E ratio for short, is a method of measuring a company’s value. The P/E ratio is calculated by dividing the company’s market value per share by the earnings per share (EPS).
PMI – A purchasing managers index (PMI) is an economic indicator comprised of monthly reports and surveys from private sector manufacturing firms. The index surveys product managers, who are the individuals that buy the materials needed for a company to manufacture its products.
Portfolio – Refers to group of assets that are held by a trader or trading company. Assets in a portfolio can come in many forms, including stocks, bonds, commodities or derivatives.
Position – The expression of a market commitment, or exposure, held by a trader. It is the financial term for a trade that is either currently able to incur a profit or a loss – known as an open position – or a trade that has recently been cancelled, known as a closed position. Profit or loss on a position can only be realised once it has been closed.
Profit and Loss (P&L) – A profit and loss (P&L) statement is a financial report that provides a summary of a company’s revenue, expenses and profit. It gives investors and other interested parties an insight into how a company is operating and whether it has the ability to generate a profit.
Pullback – A temporary pause or dip in an asset’s overall trend. The term is sometimes used interchangeably with ‘retracement’ or ‘consolidation’. However, a pullback should not be confused with a reversal, which is a more permanent move against the prevailing trend.
Quote – In trading, the quote is the price at which an asset was last traded, or the price at which it can currently be bought or sold.
Rally – A rally is a period in which the price of an asset sees sustained upward momentum. Typically, a rally will occur after a period in which prices have been flat, trading in a narrow band, or experiencing a decline.
Range – Range is the difference between a market’s highest and lowest price in a given period. It is mostly used as an indicator of volatility: if a market has a wide range, it’s a sign that it was volatile over the period analysed.
Reserves – The liquid assets set aside for future use by an individual, central bank or business. Usually they are in the form of currency or a commodity, such as gold. For traders, reserves will usually be kept as cash that can be accessed quickly.
Resistance Level – A resistance level is the point on a price chart at which an upward price trajectory is impeded by an overwhelming inclination to sell the asset. If a market price is nearing a resistance level, a trader may opt to close their position and take the profit, rather than risk the price falling back.
Reversal – A turnaround in the price movement of an asset: when an upward trend (or a rally) becomes a downward one (a correction), or vice versa. They can also often be referred to as trend reversals.
Rights Issue – When a company offers its existing shareholders the chance to buy additional shares for a reduced price. Usually the discounted price will stand for a specified time frame, after which it is returned to normal.
Risk Management – The process of identifying potential risks in your investment portfolio, and taking steps to mitigate accordingly.
Risk – In trading, risks are the ways in which an investment can end up losing you money.
Rollover – In trading, a rollover is the process of keeping a position open beyond its expiry.
RSI – RSI stands for the relative strength index. It is a key tool used in technical analysis, assessing the momentum of assets to gauge whether they are in overbought or oversold territory.
Scalp – A scalp in trading is the act of opening and then closing a position very quickly, in the hope of profiting from small price movements.
SEC – US Securities and Exchange Commission. It is a government agency set up to regulate markets and protect investors in the United States, as well as overseeing any mergers and acquisitions.
Sector – Divisions within an economy or market, useful for analysing performance or comparing companies with similar outputs and characteristics.
Share Buyback – Or share repurchase, is when a company buys back its own shares from investors. It can be seen as an alternative, tax-efficient way to return money to shareholders. Once shares are repurchased they are considered cancelled, but they can be kept for redistribution in the future.
Share Price – Or a stock price – is the amount it would cost to buy one share in a company. The price of a share is not fixed, but fluctuates according to market conditions. It will likely increase if the company is perceived to be doing well, or fall if the company isn’t meeting expectations.
Shares – Shares are the units of the ownership of a company, usually traded on the stock market. They are also known as stocks, or equities.
Short – In trading, short describes a trade that will incur a profit if the asset being traded falls in price. It is also often referred to as going short, shorting or sometimes selling.
Short Selling – The act of selling an asset that you do not currently own, in the hope that it will decrease in value and you can close the trade for a profit. It is also known as shorting.
SL – Stop Loss Price Level (a pre-determined exit price at a controlled loss)
Slippage – When the price at which an order is executed does not match the price at which it was made, it is referred to as slippage.
SNB – Swiss National Bank, the central bank for Switzerland.
Spread – The difference in price between the buy (bid) and sell (offer) prices quoted for an asset.
Stock Symbol (Ticker Symbol) – An abbreviation used to identify publicly traded companies. When a company decides to go public, it will select the exchange to list on and then choose a unique stock symbol to differentiate itself from other companies on the exchange.
Stop Order – Stop orders are types of order that instruct your broker to execute a trade when it reaches a particular level: one which is less favourable than the current market price. They can also be known as stop-loss orders, or protective stop orders.
Support Level – A support level is the price at which an asset may find difficulty falling below as traders look to buy around that level.
Technical Analysis (TA) – Technical analysis is a means of examining and predicting price movements in the financial markets, by using historical price charts and market statistics. It is based on the idea that if a trader can identify previous market patterns, they can form a fairly accurate prediction of future price trajectories.
Trading Plan – A trading plan is a strategy set by the individual trader in order to systemise evaluation of assets, risk management, types of trading, and objective setting. Most trading plans will comprise two parts: long-term trading objectives, and the route to achieving them.
Trailing Stop – A trailing stop is a type of stop-loss that automatically follows positive market movements of an asset you are trading. If your position moves favourably but then reverses, a trailing stop can lock in your profits and close the position.
Trend – When a market is making a clear, sustained move upwards or downwards, it is called a trend. Identifying the beginning and end of trends is a key part of market analysis. Trends can apply to individual assets, sectors, or even interest rates and bond yields.
Trigger – The confirmation/affirmation entry of a trading plan
Unborrowable Stock – Unborrowable stock is the stock that no one is willing to lend out to short sellers. When shares in a company become unborrowable, the traditional means of short selling them is impossible.
VaR – Value at Risk – A market’s volatility is its likelihood of making major, unforeseen short-term price movements at any given time.
VIX – VIX is short for the Chicago Board Options Exchange Volatility Index. It is a measure used to track volatility on the S&P 500 index, and is the most well-known volatility index on the markets.
Volatility – A market’s volatility is its likelihood of making major, unforeseen short-term price movements at any given time.
Volume – In trading, volume is the amount of a particular asset that is being traded over a certain period of time. It is often presented alongside price information, as it offers an extra dimension when examining an asset’s price history.
VWAP – The abbreviation for volume-weighted average price, which is a technical analysis tool that shows the ratio of an asset’s price to its total trade volume. It provides traders and investors with a measure of the average price at which a stock is traded over a given period of time.
WTI – West Texas Intermediate (occasionally called Texas Light Sweet), an oil benchmark that is central to commodities trading. It is one of the three major oil benchmarks used in trading, the others being Brent crude and Dubai/Oman.
Working Order – A general term for either a stop or limit order to open. It is used to advise your broker to execute a trade when an asset reaches a specific price
Yield – Yield is the income earned from an investment, most often in the form of interest or dividend payments. Yield is one of the ways in which investments can earn a trader money, with the other being the eventual closing of a position for profit.
US Market
Registration Statement (Form S-1, F-1, F-6) – An SEC filing used by companies planning to register their securities with the SEC. The S-1 contains the basic business and financial information on an issuer with respect to a specific securities offering.
Shelf Registration (Form S-3, F-3) – A shelf registration statement is a filing with the SEC to register a public offering, usually where there is no present intention to immediately sell all the securities being registered. A shelf registration statement permits multiple offerings based on the same registration. Shelf registration is mostly used for sales of new securities by the issuer (primary offerings), although it might possibly be used for resales of outstanding securities (secondary offerings) or a combination of both.
Primary Offering Type – An outstanding share dilutive primary offering, also known as a follow-on offering or subsequent offering, is when a company itself creates and places new shares onto the market, thus diluting existing shares. This type of offering happens when a company’s board of directors agrees to increase the share float and outstanding share count for the purpose of selling more equity.
Secondary Offering Type – A float-dilutive secondary offering does not dilute outstanding shares held by existing shareholders because no new shares are created. The issuing company might not benefit at all because the shares are offered for sale by private shareholders.
Mixed Offering Type – The ability to offer securities for sale with different size, price, and terms which may be determined at the time of sale. Can be a mixture of both a primary and secondary offering, company is registering additional shares of common stock and allows certain stockholders to sell some of their shares in the same offering.
At-The-Market Offering Type – ATMs are a type of shelf-based registered offering under which an exchange-listed issuer incrementally sells shares of its listed securities directly into the market at prevailing market prices.
Registered Direct Offering – An offering of securities that has been registered with the SEC to pre-identified investors. As such, the shares purchased by the investors are not restricted but readily tradable. Most Registered Direct Offerings involve the use of a placement agent who places the securities directly with the investors.
Regulation A Offering – Regulation A offering is an exemption from registration for public offerings. Regulation A has two offering tiers: Tier 1, for offerings up to $20 million in a 12-month period; and Tier 2, for offerings of up to $75 million in a 12-month period. For offerings of up to $20 million, companies can elect to proceed under the requirements for either Tier 1 or Tier 2.
Value Remaining – How much a company can raise by using a shelf registration.
The Baby Shelf Rule (I.B.6. Restriction) – Companies that have an aggregate market value of voting and non-voting common stock held by non-affiliates of less than $75 million, Instruction I.B.6(a) limits the amount that the company can offer to up to one-third of that market value in any trailing 12-month period. This one-third limitation is referred to as the “baby shelf rule.” The company may look back 60 days and select the highest of the last sales prices or the average of the bid and ask prices on the principal exchange. The availability for a particular takedown is measured as the current allowable offering amount less any amounts actually sold under the same S-3 in prior takedowns. Accordingly, the available offering amount will increase as a company’s stock price increases, and decrease as a stock price decreases.
Automatic Shelf Registration (Form S-3ASR) – The S-3ASR is an automatic shelf registration statement which is immediately effective upon filing for use by well-known seasoned issuers to register unspecified amounts of different specified types of securities.
Shelf Offering / Shelf Takedown (Form 424) – In a shelf offering, underwriters essentially take down securities off the shelf. A shelf offering allows a company to generate money from the sale of a stock over time. For example, if Company A has already issued some common stock, but it wants to issue more stock in order to generate some money to expand, update equipment or fund other expenses, a shelf offering allows it to issue a new series of stock that offers different dividends to stockholders. Company A is then said to be taking down this stock offering off the shelf. A takedown relates to underwritten public offerings of stock, bonds or other securities.
How Long is a S3 Effective? – The Securities and Exchange Commission (SEC) lets companies register shelf offerings for up to three years. This means that if Company A registered a shelf offering for three years in advance, it would have three years to sell the shares. If it doesn’t sell the shares within the allotted time, it can extend the offering period by filing replacement registration statements.
Underwriter / Securities Placement Agent – An underwriter or placement agent is a registered broker-dealer that assists the company offering the securities by connecting it with qualified investors who may be interested in purchasing the issuer’s securities. The more shares the underwriter can place, the higher the commission for the underwriter.
Convertible Securities – The word Convertible means that the security may be converted into common stock. Pay careful attention to the conversion features of any convertible security because they describe when and how much common stock can be issued and sold upon conversion.
Convertible Note – A form of short-term debt that converts into equity, typically in conjunction with a future financing round. The investor would be loaning money to a company and instead of a return in the form of principal plus interest, the investor would receive equity in the company.
Conversion Price – The conversion price is the amount investors pay per share when exercising their option to exchange convertible securities (convertible bonds or convertible preferred shares) into common stock diluting the value of a company’s shares.
Maturity Date – This denotes the date on which the note is due, at which time the company needs to repay it.
Death Spiral Financing – Death spiral financing is the result of a badly structured convertible financing used to fund primarily small cap companies in the marketplace, causing the company’s stock to fall dramatically, which can lead to the company’s ultimate downfall.
Warrants – Warrants are a right or option to purchase shares of the Company’s common stock at a specified price (the Exercise Price) for a specified period of time (the Term). Warrants are sweeteners added to offerings and are dilutive when exercised.
Prefunded Warrants – Prefunded warrants are a type of warrant that allows the warrant holder to purchase a specified number of a company’s securities at a nominal exercise price. The nominal exercise price may typically be as low as $0.01 per share (often referred to as “penny warrants”). Unlike standard warrants, prefunded warrants allow the company to receive the exercise price (that would have been due at the time of exercise) as part of the purchase/issuance of the prefunded warrant.
Warrants Exercise Price – This is the price at which the Investor can purchase the shares of common stock, typically at some premium to the market price of the common stock on the Closing Date of the transaction.
Warrants Size – This is the number of shares of common stock that the Investor can receive upon exercising the Warrants.
Warrant Coverage – Warrant coverage gives one or more shareholders the opportunity to gain additional shares as a benefit for buying ownership of the company. It comes in the form of an agreement that the investor will be issued warrants. It gives the holder protection against the dilutive effects of any future new share offerings. This future protection is ironic because the exercise of the warrant is dilutive itself to the existing shares.
Series of Security – Different issues of Preferred Stock and Debentures are delineated by Class and Series. For example, the first series of Preferred Stock a company issues can be called Series A, the second series can be called Series B and so on.
Private Placement – Refers to transactions exempted from the securities registration requirements of the 1933 Act under Section 4(2) that exempts transactions not involving a “public offering” of securities. The term also refers to transactions under Regulation D, 144A, and Regulation S–a series of rules recently promulgated by the SEC. In addition, reference to private placements may also extend to the isolated sale or private transaction exemptions provided for in various state securities laws.
Working Capital – A measure of a company’s liquidity, operational efficiency and its short-term financial health. If a company has substantial positive working capital, then it should have the potential to invest and grow. If a company’s current assets do not exceed its current liabilities, then it may have trouble growing or paying back creditors, or even go bankrupt.
Cash and Cash Equivalents – Cash and cash equivalents refers to the line item on the balance sheet that reports the value of a company’s assets that are cash or can be converted into cash immediately.
Authorized Shares – Authorized shares are defined as the maximum number of shares that a company is legally allowed to issue to investors, as per its own determinations. This can serve as a potential dilution cap and is subject to change by way of a vote from shareholders.
Burn Rate – The burn rate is usually quoted in terms of cash spent per month. For example, if a company is said to have a burn rate of $1 million, it would mean that the company is spending $1 million per month.
Market Value of Publicly Held Shares (MVPHS) – MVPHS is calculated by multiplying the publicly held shares (float), which is total shares outstanding less any shares held by officers, directors, employee stock ownership plans, or beneficial owners of 10% or more, by the closing bid price.
Noncompliance (MVPHS) – Nasdaq companies listed on the Global and Global Select Markets must maintain either $5,000,000 or $15,000,000 MVPHS depending on the listing standard under which they qualify. Companies listed on the Capital Market must maintain $1,000,000 MVPHS. If a Nasdaq-listed company trades below the applicable MVPHS requirement for 30 consecutive business days, it will be notified of the deficiency and afforded a 180 calendar day compliance period to regain compliance with the applicable standard.
Noncompliance (Bid Price) – How does a company regain compliance with the minimum bid price requirement? In order to regain compliance with the minimum bid price requirement, a security must have a closing bid price of $1.00 or more for 10 consecutive business days. If a company is unable to resolve its bid price deficiency during the applicable compliance period, Nasdaq Staff will issue a delisting letter.
What Is Full Ratchet? – Full ratchet anti-dilution protects early-stage investors by ensuring that their percentage ownership is not diminished by future rounds of fundraising. It requires that early investors be compensated for any dilution in their ownership caused by future rounds of fundraising.
What is a Well-Known Seasoned Issuer (WKSI)? – A WKSI is a company that has filed all annual, quarterly and current reports in a timely manner, and either has a greater than $700 million market capitalization or has issued $1 billion in registered debt offerings over the past three years.
SEC MEF Filings – An SEC MEF filing is an SEC filing that concerns registration of up to an additional 20% of securities for an offering, pursuant to the 1933 Securities Act Rule 462(b). Rule 462(b) says that a registration statement and any post-effective amendments for up to an additional 20% of securities will become effective upon filing with the SEC if the registration is for the same class of securities already approved for registration by the SEC. The filing is done by an issuer who is increasing the size of its offering.
Free Writing Prospectus (FWP) – Any written communication that represents an offer to sell or a solicitation of an offer to buy SEC-registered securities that is used after the registration statement has been filed.
No-Par Value Stock – Corporations issue no-par value shares because it helps them avoid liability to stockholders should the stock price tank. For example, if a stock was trading at $5 per share with a par value of $10, the company would have a $5-per-share liability. Most shares issued today are indeed classified as no-par or low-par value stock, where the stock prices are determined by the amount that investors are willing to pay on the open market.
Marketable Securities – Marketable securities are financial instruments that can be sold or converted into cash (at reasonable value) within one year. They are highly liquid investments that are generally issued by businesses to raise funds for operating expenses or expansion. When a business invests in marketable securities, it is usually to generate short-term earnings from excess cash.
REITS Investment
Anchor Tenant – Generally describe the lessee that rents the largest portion of a property. They usually sign long-term leases which allows them to negotiate favourable lease agreements with the REIT due to having a greater bargaining power as a main revenue contributor to a property.
Ancillary Tenant – Used to describe the lessee that does not rent a significant portion of a property. Properties with disproportionately higher number of ancillary tenants tend to have shorter weighted average lease expiry (WALE).
Basis Point (bps) – The daily percentage change in financial instruments in a portfolio, such as the yield on a fixed-income security, are expressed in basis points. A basis point is equal to 1/100 of a percentage point. so 1% equals 100 basis point.
Base Rent – The minimum rent due to a landlord, as defined in a lease.
Base (Expense) Year – A base year is typically the first year of a lease, during which time the landlord determines the actual taxes and operating expenses associated with a tenant’s occupying their space. After the base year, the landlord agrees to pay an expense amount based on the base year expenses, and the tenant pays any increases in expenses over the base amount.
Built Up Area / Construction Floor Area (CFA): Total development’s constructed area (eg. including parking, service, unsheltered roof area which are not covered by Gross Floor Area.)
Capital Expenditures (CAPEX) – Generally Accepted Accounting Principles (GAAP) requires that certain expenditures be classified as capital expenses rather than operating expenses. There are two primary classification of capital expenses (CAPEX);
- Recurring CAPEX: money spent on improvements to a property that facilitate its leasing but that are nonstructural. (eg. Leasing commissions, tenant improvement paid to lease a space, both of which are capitalized and then amortized over the life of the lease.
- Nonrecurring CAPEX: money invested in structural improvements that extend the life of a property, such as construction/improvement works to the flooring of a industrial building. Because of the nature of the work, they are not expensed; instead, they are capitalized into the basis of a property.
Capitalization Rate – Capitalization Rate (Cap Rate) measures the expected unleveraged return of an asset. The cap rate for a property is determined by dividing the property’s net property income by its purchase price. Thought of another way, cap rates are the inverse of price/earning ratio, where earnings are measured by net property income. High Cap Rates generally indicate higher expected returns and/or greater perceived risk.
Category 1 Office Buildings: Category 1 office buildings are defined as those located in core business areas in Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, command relatively high rentals and have large floor plate size and gross floor area.
Category 2 Office Buildings: These are the remaining office buildings which are not included in Category 1 office buildings.
Common Area Maintenance (CAM) – “Common Areas” are areas within property that are used by all tenants, such as an office building’s lobby, sidewalks, landscaping and parking lot lighting. Certain lease structure allow a landlord to charge tenants for their proportionate shares of the additional cost to maintain a property’s common areas. CAM charges therefore are additional rent charged for maintenance that benefits all tenants.
Compound Annual Growth Rate (CAGR) – It is the mean annual growth rate of an investment over a specified period of time longer than one year. It represents one of the most accurate ways to calculate and determine returns for individual assets, investment portfolios, and anything that can rise or fall in value over time.
The compound annual growth rate isn’t a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments.
Correlation – The extent to which the price of one type of investment moves with those of other investments (eg. REIT A vs REIT B). A perfect correlation of 1.0 suggest that the price movement can be exactly predicted by the price movement of the investment to which it is compared.
Cost of Capital – The cost a company bears to have a form of equity and debt capital issued and outstanding. The cost of ordinary shares generally is considered to include the dividend rate paid to shareholders plus investors’ expected equity growth rate. The cost of preferred share equals the dividend or “coupon”payment associated with each preferred share. The cost of debt capital is the interest rate associated with each type of debt issued by the company. (eg. Mortgage loan, Medium Term Note)
Discounting – When used in financial term, the process by which expected future developments and events that will affect an investment are anticipated and taken into account by the price at which the investment currently trades in the market (eg. Inflation)
Distributable Income – The adjustments including sum of depreciation and amortization, future income tax expenses and excluding any gains or losses on disposition of any asset, future income benefits and any other adjustments as determined from its Net Income.
Distribution Per Unit (DPU) – It is the amount of dividend paid from the distributable income to the unitholders for every unit, or share that they own in the REIT for a specific accounting period.
Distribution Yield – It is derived from DPU / Stock Price at the point of trading. This is a simple metric used to measure the performance of a REIT.
EBITDA – Earnings before interest, taxes, depreciation, and amortization.
Economic Cycle – The natural fluctuation of an economy between periods of expansion (growth) and contraction (recession).
Economic Indicator – Data, such as weekly employment report, ISM non manufacturing index report, used by investors/analyst to interpret the overall health of the economy.
Effective Borrowings – Calculated by adding/(deducting) derivative financial instruments liabilities/(assets) to/from gross borrowings, including deferred consideration.
Equity Market Capitalization – It is calculated by multiplying the stock price times the number of ordinary shares outstanding.
Escalation Clauses – Provisions in a lease that allow a landlord ot pass through increases in operating expenses subject to the first or Base Year expense levels. Rent escalation usually occur on an annual basis and tend to be tied to increase the Consumer Price Index or are expressed as fixed periodic increases.
Exchange Traded Fund (ETF) – A marketable security designed to track the performance of an index, a commodity, bonds or a basket of assets. Unlike mutual funds, an ETF trades like a ordinary share on a stock exchange.
Full Service Lease – A lease in which the tenant pays the landlord a fixed monthly rent that includes an expense stop calculated off a base year. The landlord then pays all the monthly expenses associated with operating the property, including utilities, taxes, maintenance, and so forth. The tenant gets “full service” in exchange for the monthly rent and does not have a contract with service providers directly.
GAAP – Generally Accepted Accounting Principles. The set of rules considered standard and acceptable by Certified Public Accountants.
Gearing Ratio (Gearing / Aggregate Leverage) – It is defined as the total liabilities over the total asset value of the REIT.
Greenfield Development – An expansion strategy or project in which a REIT manager decides to develop a new property or development from scratch.
Gross Absorption – The absorption rate is the rate at which rentable space is filled. Gross absorption is a measure of the total space leased over a specified period with no consideration given to space vacated in the same area during the same period of time.
Gross Floor Area (GFA) – A metric as defined under the Urban Redevelopment Authority (URA) Singapore guidelines as measuring all sheltered floor areas of a building and unsheltered areas for commercial uses for purposes of plot ratio control and development charge. (eg. including balconies, excluding carpark)
Gross Revenue – Total revenue collected from all of a REIT’s portfolio of assets (including gross rental income, car park income and other income).
Gross Turnover Rent (GTO) – Also known as Percentage Rent, as it is additional rent payable to the landlord, based on a percentage of the volume of tenant sales generated on a property. A typical GTO rent arrangement involves a base rent component and a deduction from total sales once it reaches the pre-set target.
Hedge – An investment to reduce the risk of adverse price movements in an asset that are usually with a negative co-efficient.
Hurdle Rate – The minimum acceptable return required before making an investment.
Internal Rate of Return (IRR) – A metric used to calculate a investor’s projected and actual investment returns, including both returns on investment and returns of investment. It takes into account all cash receipts from investment (forecasted or actual), balanced against all cash contributions, so that each receipt and each contribution is discounted to net present value, the sum is equal to zero. IRR is ideal for analyzing capital budgeting projects to understand and compare potential rates of annual return over time.
Interest Coverage Ratio (Interest Cover) – It is the ratio of the NPI against interest (or financing) expenses during the same accounting period. This ratio measures the extent to which interest expense on outstanding debt is covered by existing cash flow. The higher the interest cover, the higher the margin of safety for a REIT to service its debt.
ITES – Information Technology Enabled Services
Lease – An agreement between a landlord (the lessor) and a tenant (the lessee) whereby the tenant agrees to pay a monthly sum (rent) for a defined period of time in exchange for the right to occupy the landlord’s space.
Lease Novation – Is when a tenant transfers its rights and obligations under the current lease agreement to a third party, before the expiry of the lease agreement. This novation must receive full consent from both the tenant and the landlord to be valid.
Leverage – The process by which the owner of a property may expand both the economic benefits and the risks of property ownership by adding borrowed funds to his or her own funds that have been committed to the acquired asset.
Market Rent – The rate a landlord could charge a tenant to occupy space, based on competing space and current market conditions.
Net Absorption – Calculated as the amount of occupied square feet at the end of a period, less the amount of square feet leased at the beginning of a period. Net absorption measures the the space leased in a specified property over a fixed period of time, after taking into account any space vacated in the same area during the same period.
Net Asset Value (NAV) – An estimate of the current market value of all of a company’s tangible assets, including but not limited to its properties, less the total liabilities and obligations.
Net, Double-Net, and Triple-Net Lease – There are three levels of “net”when referencing lease structures wherein expenses are paid by the tenant as part of total rent; maintenance which includes utilities, insurance, and taxes.
- A Net Lease generally implies that the tenant pays rent and the cost of maintaining the property; the landlord pays the insurance, and taxes.
- A Double Net Lease (also known as net-net), the tenant pays rent, and two of the following; taxes, insurance and maintenance.
- A Triple Net Lease, the tenant pays rent to the landlord and all cost associated with maintenance, insurance, and taxes.
Net Lettable Area (NLA) – A metric indicating the amount of floor space within a property that can be rented out for income.
Net Property Income (NPI) – The REIT’s gross rental revenues from properties, less all properties operating expenses including taxes and insurance. The term ignores depreciation and amortization expenses as well as interest on loans incurred to finance the property.
Net Property Income (NPI) Yield – The NPI Yield is derived from the ratio of the NPI against the Gross Revenue generated by the REIT. It is similar to the Gross Profit margin of a business.
Net Income – Net Property Income after deduction of REIT operating expenses such as management fees, financing cost, and foreign exchange gains or losses.
Plot Ratio – Determines the maximum gross floor area (GFA) of any development on that area of land, using the multiplication of land area and Plot Ratio value. It is also deemed as the permissible development intensity of that land parcel.
Price to Book Ratio (PB Ratio) – It is calculated as the ratio of the Unit Price against the NAV per unit.
Price to Earnings Ratio (PE Ratio) – The relationship between a company’s stock price and its earnings per share. It is calculated by dividing the stock price by the company’s earnings per share, on either a trailing twelve-month basis or forward-looking basis.
Price Alerts – Available on most of the CFD platforms, also known as trading alerts – allow you to set specific criteria and be notified immediately once that criteria has been met. There are three main types: economic announcements, price alerts and indicator alerts.
Property Manager – They are typically appointed by the REIT Manager to manage the underlying real estate properties of the REIT. It oversees renting out the property to achieve the best tenancy mix and rental income, running marketing events or programs to attract human/shopper traffic and to upkeep the property in general. In exchange, the Property Manager is paid a Property Management Fee out of the assets of the REIT.
Property Yield – A metric used to assess the income-generating power a REIT’s portfolio of properties, Property Yield = Net Property Income (NPI) from all properties/Total value of properties (based on the latest available valuation). This is in contrast to the Distribution Yield, which is the yield that the REIT investor receives.
Portfolio Diversification – The act of investing in different asset classes and securities (eg. stocks and bonds) in order to reduce investment risk and to enhance the expected return from an invested amount.
Real Estate Investment Trust (REIT) – Essentially a corporation or business trust that combines the capital of many investors to own, or provide financing for all forms of real estate investment. A REIT is not required to pay corporate income tax if its distributes at least 90% of its taxable income to shareholders each year.
Rental Reversion – A metric captured by some REITs to show whether new leases signed have higher or lower rental rates than before.
Revenue Per Available Room (RevPAR) – The product of a hotel’s average daily room rate (ADR) and its daily occupancy.
Risk Free Rate (Risk Free Yield) – Amount of yield an investor will make if he invests in government-issued bonds such as Singapore Savings Bonds (SSB), or Central Provident Fund (CPF) Ordinary or Special Account interest rates. It is usually used as a benchmark to which the REIT dividend yield should be ahead of to attract investors, via analyzing the market Yield Spread.
SEZ – Special Economic Zone
Single User Factory: This refers to a factory building that has a single occupier and is used for a purpose solely related to that occupier.
Sponsor – The party that typically sources/developed the properties that are placed into the initial portfolio of the REIT and may continue to provide a pipeline of assets for the REIT. Usually, the sponsor also owns stakes in the REIT manager and the REIT.
Total Market Capitalization – The sum of a REIT’s equity market capitalization, plus the liquidation value of any preferred stock outstanding, and the principal amounts of debt outstanding.
Total Return – The sum of a stock’s dividend income plus capital appreciation before commissions and taxes.
Trustee – They are responsible for holding the assets of the REIT on behalf of unit holders. Its duties are laid out in the trust deed for the REIT, which include ensuring compliance with all applicable laws, taking custody of the real estate assets, and protecting the interest of unit holders. The trustee is paid a fee for providing this service.
Trust Deed – A legal document setting out the details of a trust (e.g. identity of the trustee and manager, investment mandate) and the rights and obligations of unitholders. REITs are governed by their respective trust deeds with the trustee having full legal ownership of the trust’s assets instead of the trust’s unitholders.
Vacancy Rate: The percentage of the existing stock that is vacant. Vacancy rates are used for private residential properties, office space, shop space, factory space and warehouse space
Vacant Units/Space: Available units/space that are/is not physically occupied.
Volatility – The extent and intensity to which the market price of a stock tends to fluctuate from day to day, or even hour to hour.
Weighted Average Lease Expiry (WALE) – A metric used to measure the tenancy risk of a particular property. It is typically measured across all tenants’ remaining lease in years and is weighted with either the tenants’ occupied area or the tenants’ income against the total combined area or income of the other tenants
Written Permission: The approval granted by the Minister for National Development or the Competent Authority to develop any land subject to conditions in accordance with the development rules in force.
Yield Accretive Acquisition – Purchase of an asset that leads to an increase in acquiring REIT’s distribution per unit.
Yield Dilutive Acquisition – Purchase of an asset that leads to a reduction in acquiring REIT’s distribution per unit.
Yield Spread – The difference of Distribution Yield against Risk Free Yield. Yield Spread which are narrow, decreasing or negative imply that the REIT are overvalued and investors are better off putting their money in a safer investment (eg. Government Bonds/Treasuries). On the other hand, increasing Yield Spread implies that the REIT presents some value for investment during the period.