Glossary beginning with B
Interactive Investor’s All You Need to Know Investment Glossary
- B Share
Instead of paying income in the form of a dividend, as with ordinary shares, B shares pay their holders in extra shares instead. This extra allocation is called a scrip issue. B shares were designed for higher-rate taxpayers as a way of avoiding income tax on dividends.
- Balance sheet
The balance sheet forms part of a company's annual report and accounts. It lists everything the company owns and owes.
- Bank base rate
The Bank of England’s Monetary Policy Committee sets a basic rate of interest that determines the cost of borrowing money. Commercial banks use this as a reference point when setting their own base rates. Basically, when the base rate increases, the cost of borrowing increases, so mortgages and personal loans become more expensive. But at the same time, savers usually benefit from higher interest rates on their savings. Unfortunately, lenders have a nasty habit of increasing their borrowing rates immediately after a base-rate rise, whilst showing less enthusiasm for increasing savings rates as quickly.
Stockbroker jargon for a share transaction.
In a Capital at Risk product, the Barrier is the level of the index or other measure which must be breached before losses are incurred.
- Base currency
The first currency listed in the pair.
- Basis point
A hundredth of one per cent (0.01%). City folk talk about basis points because even tiny increases or decreases in interest rates can make a massive difference to profits/losses when you're dealing in chunks of several million at a time. Otherwise known as a 'pip'.
- Bear market
This is a term for the stockmarket when share prices are falling consistently over a long period, rather than just on the odd day here and there. Investors are often called 'bearish' if they think prices are going to fall. The opposite of a 'bear' is a 'bull'.
- Beta (investing)
A measure of how volatile a share price is - that is, how much it tends to rise and fall over a period. The beta measures the distance between the high points and the low points, so the higher a share's beta, the more volatile it is. If you're investing for the long term, volatility doesn't matter much, but if you're a short-term speculator, a highly volatile share can offer big rewards, but also big potential losses if your timing is off. A beta of one means the share price moves parallel with the market as a whole, matching the benchmark index.
- Bid/offer spread
If you want to buy an investment, you pay the offer price, and if you want to sell, you pay the bid price. The offer price is higher than the bid price and the difference between the two is known as the spread. The size of the spread depends on the sales, management and marketing costs of the investment, and the amount of profit margin built in. With shares, the spread is typically 5-10%, but can be much higher.
- Big Bang
When the London Stock Exchange went fully electronic in 1986 and consigned all those waving, shouting, blazer-wearing characters on the stockmarket floor to history. It introduced much-needed competition into the market and removed pernicious minimum commissions.
- Blue chip
Big, safe stockmarket quoted company, usually in the FTSE 100. You won't make millions investing in them, but at least you'll be able to sleep at night.
- Bollinger Bands (b%)
Bollinger Bands were developed as an indicator by trader John Bollinger in the 1980s. A technical analysis tool, they can be used to measure the highness of lowness of the price relative to previous trades. They consist of a middle band being an N-period simple moving average, an upper band K times an N-period standard deviation above the middle band and a lower band at K times an N-period standard deviation below the middle band. Typical values for N and K are 20 and 2 respectively. Not one for beginners.
A bond is like an i.o.u. You effectively loan money to a company or government in return for a fixed level of income.
- Bonus issue
The issue of new shares to all shareholders, made as a sign that the company is in good health and has excess capital which it can return to shareholders. They can be more tax efficient for investors than a special dividend, where investors have to pay income tax on the proceeds, as scrip shares can be sold for a capital gain. Also known as a scrip issue.
- Book value
This a theoretical figure representing how much a company is actually worth once all its debts and other liabilities have been subtracted from its assets. It doesn't necessarily bear any relation to its stock market value.
Acronym for Brazil, Russia, India and China. First postulated by Goldman Sachs in 2003 in a report which suggested that by 2050 these four economies would be wealthier than most of the current economic powers. Essentially a phrase meant to describe the four most potent emerging markets nations.
- Bridging loan
A short term loan often taken out by homebuyers to finance a property purchase before they've managed to sell their existing property. Although they fulfil a useful function, bridging loans are risky. What if you don't manage to sell your existing property for a long time? You're landed with two hefty loans to payoff. And bridging loans also tend to be more expensive that ordinary loans. So think carefully before you choose this option. Is the new property really worth the risk and extra expense?
Usually short for stockbroker, but can refer to any intermediary selling financial products, from insurance to advice. Whatever they sell, you usually pay for their services somewhere along the line.
- Bull market
Sustained period of rising share prices. A 'bull' investor is therefore someone happy to buy in the belief that shares will rise. See Bear market
When a company buys back its own shares on the open market and then deletes them. This reduction in the overall number of shares on the market usually has the effect of increasing the share price. It is another way companies can reward their shareholders, especially if there's been criticism that the share price has being performing badly.
A company's management team will often decide to buy all the company's shares and thereby take complete control of the company. This is called a management buy-out, or MBO for short. If they've had to borrow money to buy the shares, it's called a leveraged buy-out. A stockmarket quoted company may also buy back all its shares and return it to privately-owned status. It can also just mean the purchase of the controlling stake in a company.
Word of the Day
When a company floats on the stockmarket the initial scrabble for its shares is known as the primary market. After all the shares have been allocated to the investors who applied for shares, they can then be traded on the secondary market - the usual market for shares provided by the London Stock Exchange.