Glossary
We appreciate that technical language is often used within the financial services industry. In our glossary below, we explain some of the terms most frequently used.
A
Absolute return
The profit or loss on an investment over a period of time without comparing it to how other investments, measures and/or benchmarks have performed, typically expressed as a percentage.
Active management
Where an investment manager uses their expertise to decide which investments to buy or sell and when.
Asset allocation
The process of deciding what asset classes to invest in, such as investment types, geographical areas or industry sectors, and in what proportion.
B
Basis point
One basis point is 100th of 1%. So 10 basis points (bps) equals 0.10% and 100 bps is 1%.
Basis trade
A strategy that exploits the price difference between a futures contract and the underlying asset. Investors profit when the price gap between the two narrows or widens, depending on the trade setup.
Bear investor
An investor who sells their shares now with the intention of buying them back later at a lower price.
Bear Market
An extended period of time when share prices fall and investors are pessimistic.
Benchmark
Comparator index for performance purposes.
Bonds
Bonds are interest-paying financial products issued by governments, companies and other institutions when they want to borrow money from investors.
Bottom-up
An investment approach that focuses on analysing individual shares and their fundamental value before consideration of wider economic trends. It is associated with share picking and a more granular analysis of specific investments.
Budget Deficit
When a government spends more money than it brings in through taxes and other income. It often borrows to make up the difference.
Bull investor
An investor who buys shares now on the expectation prices will rise in the future.
Bull market
An extended period of time when share prices rise and investors are optimistic.
C
Capital Expenditure (CapEx)
CapEx refers to the money a company spends to acquire, upgrade, or maintain physical assets such as property, buildings, or equipment. These investments are intended to improve the company’s long-term efficiency or capacity.
Capital Flow
Is the movement of money into or out of a country, market, or asset. For example, if overseas investors are buying UK shares, that’s a capital inflow. If they’re selling and moving their money elsewhere, that’s an outflow. It’s often influenced by interest rates, economic outlook, and investor confidence.
Capital markets
Financial markets where individuals, companies, and governments raise and invest funds through the buying and selling of various financial instruments, such as shares and bonds.
Central banks
National institutions (like the Bank of England or the US Federal Reserve) that manage a country’s monetary policy, control interest rates, and help ensure financial system stability.
Closing a position
Ending an investment by taking the opposite action to the one that opened it — for example, selling a stock that was bought earlier. This locks in any gains or losses.
Conflagration
Although it usually means a large fire, in financial language conflagration is sometimes used metaphorically to describe a serious or widespread problem — for example, a financial conflagration might refer to significant market turmoil, or a geopolitical conflagration could mean rising tensions or conflict between countries that could impact investor sentiment.
Consumer Price Index (CPI)
A key economic indicator that measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is widely used to assess inflation or deflation in an economy.
Consumers
People who buy goods or services for personal use. They play a key role in driving demand in the economy.
Core Consumer Price Index (Core CPI)
Measures inflation but leaves out food and energy prices, which can change a lot from month to month. By removing these elements, Core CPI provides a clearer view of underlying, long-term inflation trends and is often used by central banks to guide interest rate decisions.
Credit spreads
Measures the difference in yields paid on government bonds, viewed as being lower risk, and bonds issued by companies, considered higher risk.
Cyclical Environment
A cyclical environment refers to economic conditions that are strongly influenced by the business cycle — periods of expansion and contraction. In a cyclical environment, certain industries (like construction, retail, or travel) tend to do well in economic booms and poorly in downturns.
D
Derivatives
Investments whose value is linked to that of an underlying asset such as oil or company shares, or the performance of an index, or other variable factor.
Dovish
A term used to describe a central bank or policymaker who favours lower interest rates and supportive monetary policy to encourage economic growth. Dovish comments or decisions often suggest a greater concern about slowing growth or unemployment than about inflation.
Duration
A measure of how sensitive a bond's price is to changes in interest rates.
E
Earnings season
A period when publicly listed companies report their financial results for the previous quarter.
ESG
An investment approach that takes Environmental, Social and Governance (ESG) factors into account.
Economic cycle
An economic cycle is the overall state of the economy as it goes through four stages in a cyclical pattern: expansion, peak, contraction, and trough.
Equities
Equities are shares in companies.
Exporters
Businesses or individuals that sell goods or services to customers in other countries. Exporting can help businesses grow and bring money into the local economy.
Extrapolation
A method used to estimate future trends based on existing data. For example, if sales have grown steadily, extrapolation assumes they’ll continue growing at the same rate.
F
Federal Reserve (FED)
The central bank of the United States, which manages interest rates and money supply to support the economy.
Fiscal Policy
The way a government uses spending and taxation to influence the economy. For example, cutting taxes or increasing public spending to boost growth.
Future (also referred to as futures contract)
A legal agreement to buy or sell a specific asset at a predetermined price at a set future date. Commonly used for hedging or speculation in markets like commodities, equities, or interest rates.
G
Growth
Growth companies are businesses forecast to achieve strong earnings growth and are often on higher valuations as a result.
Gilts
Bonds issued by the UK government to raise money. Investors receive regular interest payments and get their money back at the end of a fixed term. They’re generally seen as low-risk investments.
H
Headwinds
Factors that challenge the growth or performance of an investment or the overall market. For example, rising interest rates and economic downturns.
Hedge fund
A privately managed investment fund that uses a wide range of strategies — including leverage, derivatives, and short selling — to generate returns, often targeting high-net-worth individuals or institutions.
Hedging
Used to mitigate or manage risk by making investments that offset potential losses in other investments.
I
Importers
Businesses or individuals that buy goods or services from other countries to use or sell domestically. Imports can offer more choice and competitive prices to consumers.
Index
A numeric score that represents the performance of a group of assets, such as shares, bonds, or other assets.
Initial Public Offering (IPO)
An initial public offering is when a company lists on a stock exchange for the first time.
Investment grade
Governments, companies and investments rated by a credit rating agency as relatively low risk.
J
K
L
Leverage
Using borrowed money to increase the size of an investment. Leverage can amplify both gains and losses.
Liquidity
The ease with which an investment can be bought or sold without affecting the price.
Listless
The term “listless” is used to describe a market or asset that is showing little or no activity. It typically means prices aren’t moving much, and there’s a lack of trading interest, momentum, or direction — for example, “listless trading” might follow a major event or occur when investors are waiting for more information.
Long dated gilts
UK government bonds with an end date of more than 15 years.
Long Position
A long position is the traditional way of investing: buying an asset with the expectation that its price will rise. For example, buying shares in a company and holding them in hopes of future growth is taking a long position.
M
Margin
The amount of money an investor must deposit to open and maintain a leveraged position. It acts as a security deposit to cover potential losses.
Marginal Cost
Is the cost of producing one additional unit of a good or service. For example, if a factory can make 100 widgets for £1,000, but it costs £1,010 to make 101, the marginal cost of that extra widget is £10. It’s important for understanding pricing, profitability, and efficiency.
Market sell off
When an event triggers a large volume of investments to be sold in a short period of time, causing the price of investments to fall rapidly.
Median
The median is the middle value in a set of numbers.
Medium dated gilts
UK government bonds with an end date between five and 15 years.
Mergers & acquisitions (M&A)
Mergers and acquisitions refers to corporate transactions where two companies are combined, for example through one buying the other.
Monetary policy
The actions central banks take, like setting interest rates, to control inflation, support growth, and stabilise the economy.
Money market instruments
Usually issued by banks or governments that are a short term loan (less than one year) to the issuer by the buyer.
N
O
P
Passive management
The investment manager aims to track or best represent the performance of a market or benchmark.
Positions
A position refers to the amount of a particular asset or investment held by an individual or institution. It can be long (expecting the asset to rise in value) or short (expecting it to fall).
Price/earnings multiple
The price/earnings multiple (p/e) is the share price divided by earnings per share. This shows investors how highly the company’s shares are priced in relation to its profits. The p/e multiple is one of the most commonly used measures of stock market value.
Q
R
Relative return
The profit or loss on an investment compared to how other investments, measures and/or benchmarks have performed.
Reserve Currency
A reserve currency is a currency that is widely used by governments and institutions as part of their foreign exchange. It’s used for global trade and investments. The US dollar is the most common example. Being a reserve currency reflects global trust and influence.
Retailers
Businesses that sell products directly to consumers, either in physical stores or online. They act as the final step in the supply chain between manufacturers and the public.
Risk Sentiment
Refers to how investors are feeling about risk at a given time. If risk sentiment is positive, investors are more willing to take on risk, often favouring shares or other growth investments. If it’s negative, they tend to move into safer assets like bonds or cash.
Rolling period
A time period that moves forward continuously, no matter which day you start on.
S
Short-dated gilts
UK government bonds with an end date within five years.
Short-dated bonds
Short-dated bonds are bonds with less than five years until maturity, which is when the capital is due to be repaid.
Short Position
Taking a short position means an investor is betting that the price of an asset will fall. This often involves borrowing the asset to sell it, hoping to buy it back later at a lower price and keep the difference.
Stagflation
Is when the economy experiences stagnant growth, high unemployment, and high inflation — all at the same time. This is unusual because inflation usually rises when the economy is growing, not when it’s weak. Stagflation can be particularly difficult for central banks to manage.
Sub investment grade
Governments, companies and investments rated by a credit rating agency as relatively high risk.
Systemic risk
A sector of the economy or the financial / banking system failing due to the interconnectedness of institutions, and how the collapse of one firm may cause another to collapse.
T
Tariffs
Taxes placed on imported goods, usually to protect domestic industries or raise government revenue.
Top-down
An investment approach that focuses on broad economic trends first, identifying areas of promise, and then focussing on investments within those areas.
Topline
This refers to a company’s revenues or gross sales—the figure at the very top of the income statement. It represents the total income from goods or services before any costs or expenses are deducted, giving an early indication of business performance.
Trade deals
Agreements between countries that set the rules for buying and selling goods and services across borders.
U
Unwind
To unwind a position means to close or reverse an existing trade, often to realise profits or limit losses. For example, selling shares that were previously bought.
V
Value
Value companies are those that appear be undervalued at their current share price.
Volatility
A measure of how much the price of an asset fluctuates over time. Higher volatility means greater price swings and typically higher risk.
W
X
Y
Yield
The income from an investment, usually stated as a percentage of the value of the investment.
Z