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Glossary of Investment Terms

Shares.: A unit of a company’s capital allotted to an individual.

Equity: Monies supplied to a company by persons and institutions having ownership interest in it.

Interest-bearing securities (i.e. debt securities) issued by corporate entities and governments. However, in Nigeria, Federal Government long-dated instruments are generally not called bonds but stock.

Bonus Issues
Shares distributed free to shareholders out of a company’s reserve in proportion to the number of shares held, e.g. shareholders could receive one new share for every two held. Such shares add to the shareholder’s holdings as well as the company’s outstanding shares (paid-up capital) but does not generate additional fund for the company. It is also called share dividend because it is a portion of post tax profit that is declared by a company and distributed to shareholder in form of shares in proportion to the number of shares already held.

The allocation of securities among various subscribers to a security issue. In Nigeria, preference is given to small subscribers in the allotment of securities in line with the widespread share ownership philosophy of the Federal Government.

An item of commercial or exchange value owned by a company, individual, government, etc. It also refers to the culmination of all the items accompany owns — total assets.

Active Market
A stock market with high transaction volumes. Such markets usually display high liquidity.

Bearish Market
A general decline in prices of securities or commodities in a stock or commodity market.

Bull Market
Stock or commodity market witnessing a general rise in price.

The maximum price investors are prepared to pay for a security on the stock exchange at a given point in time.

Blue Chip
Companies which are widely known for good financial performance, product acceptance, high-quality management and regular dividend payment. Owing to these features, blue chips securities are usually in high demand.

A financial intermediary who combines the functions of a stock- broker and a securities dealer.

Brokerage Commission
Fee charged by a stockbroker for services rendered in the course of buying and selling securities on behalf of a client.

Capital Gains
Gains made at the disposal (sale) of securities by an investor. It is the difference between the price at which the securities were bought and the price at which they were sold. When such difference is positive, it is said to be a capital gain. When the difference is negative, this is a capital loss.

Cash Dividend
The portion of after-tax profit that is declared by a company and distributed to shareholders in proportion to their holdings in the company.

Cash Settlement
Payment for securities transactions in the secondary market in cash as distinct from normal account settlement.

Closing Prices
Final prices at the close of transaction on an exchange.

Cum Dividend With dividend
The buyer of an equity cum dividend is entitled to the dividend already declared or to be declared by the company whose security was bought.

Cum Rights With rights
A buyer of a security marked cum rights is entitled to participate in an impending rights issue of the company. 65 Cumulative Preference Shares Preference shares having a provision which allows dividends not paid in a particular year or period to be accumulated and carried forward to a later date.

Dealing Member
A member of a stock exchange authorized to buy and sell securities on behalf of the public or for their own account.

The removal of a security from the official list of a stock exchange resulting usually from the failure of a company to comply with post-listing requirements, maturity of debt instruments or merger between quoted companies. Once delisted, the security ceases to be traded on the exchange.

Dividend Yield
The ratio of current dividend to the market price of a security.

Dual Listing
The listing of a security on more than one stock exchange. This usually improves the liquidity of the security and could encourage arbitrage trading. 98 Due Date The date when interest on a debt instrument or the principal falls due for payment to creditors/investors.

Earnings Per Share
Gross profit of a company (less taxes and obligations to preference shares and bond holders), divided by the company’s paid-up capital. It shows how much a company had earned on its ordinary shares.

Ex-Dividend Without Dividend
The buyer of a security marked ex-dividend will not be entitled to receive current or impending dividend of the company whose securities were bought.

The fusion of two or more companies usually on equal terms.

Holding Company
A company which owns sufficient equity capital in another company and thus exercises control over the latter.

Statistical data computed to measure changes in the value of commodities, securities, etc. An index is derived from the prices of all or some market constituents, usually expressed in percentage change from the base period. Indices are important measures of the performance of an economy or a financial market.

A person (or institution) who buys and sells financial instruments with the aim of enhancing income and/or diversifying risk.

Interim Dividend
Dividend declared and distributed by a company to its shareholders prior to the determination of final profit position for the financial year.

Insider Dealing
Trading in the securities of a quoted company based on unpublished price-sensitive information of the company, to make a profit or minimize loss.

Limit Order
A directive (order) given to a stockbroker by his client to buy or sell a given quantity of a security at a specified price. The client may also state the period for which the order would be valid.

The ease at which a financial instrument can be converted into cash. An instrument which can be quickly converted is said to be liquid while one which cannot be easily converted is regarded as illiquid. A stock market is considered liquid when it can absorb large volumes of trading without significant change in prices and when securities can be easily converted into cash.

Market Capitalization
The market value of a company’s paid-up capital, determined by multiplying the current quoted price by the total number of shares outstanding. The market capitalization of a securities exchange is the aggregate market capitalization of all its quoted securities.

Market Order
An order given to a stockbroker by his client to buy or sell a given quantity of a security at the best price prevailing in the market. 193 Market Price The prevailing price of a security in the stock market.

Market Manipulation
The sale or purchase of a security with the intention of creating an artificial market in it, i.e by giving a semblance of a bull or bear market in the security.

A dealer who stands ready to buy and sell securities for his own a count at his own risk. By so doing, a market-maker provides liquidity to and maintains stability in the market. (See dealer specialists).

National Association of Securities Dealers (NASD)
A self-regulatory organization of broker/dealers operating in the NASDAQ market. The NASD owns and operates the NASDAQ. In Nigeria, the NASD would operate the over-the-counter market.

Net Asset
The total asset less total liabilities of a company. It is also referred to a net worth.

New Issues
Securities of a government or corporate entity newly created and offered for subscription to the public, or to a select group of investors, in the case of private placement, or to a company’s existing shareholders as with rights issues. New issues are a means of raising funds for development financing, and do enlarge the paid-up capital of a company.

The totality of the various types of securities and other financial instruments (stock, bonds, treasury bills, etc.) held by an investor. Although it mostly refers to financial instruments, real estate investments are often included.

The difference between par value and market price and same time between transaction price and the previous m price when the difference is positive.

Primary Market
The market for the sale and purchase of freshly issued (additional) securities of a corporate entity or government. (also called new issues market).

Private Placement
The sale of securities to a select group of investors as opposed to the general public. It usually by-passes the normal sales mechanism.

A document issued by a company giving detailed information about itself and the securities being offered to the public. Such documents are usually required by law to be filed and vetted by securities commissions for completeness and subsequent registration before their release to the public. The prospectus is, in other words, a vending document, which enables investors evaluate the securities being offered and decide whether or not to participate.

Public Offering
An invitation by a company or government to the general public to purchase its securities on offer. (see offer for subscription and offer for sale).

Quoted Price
The price at which a security listed on a stock exchange is traded at a given time.

A capital market operator appointed by a public company to maintain a comprehensive list of its bond/ shareholders; dispatches annual report, dividend warrants and return monies and other documents to shareholders. He may also arrange annual general and extra-ordinary general meetings on behalf of the company and perform other related functions. Registrars’ activities are not restricted to public companies but extend to government issues.

Rights Issue
A new issue of securities of a company offered to its existing shareholders in proportion to their holdings. To enhance attractiveness, rights issues are usually offered at a discount to the market price of the security.

Retained Earnings
Undistributed profits of a company accumulated for reinvestment.

Secondary Market
A securities market such as a stock exchange or an over-the-counter market where existing securities of corporate bodies and governments are bought and sold. Such securities has been previously issued and sold in the primary market by the issuing entity. The secondary market allows holders of securities to sell, and those desirous of buying existing securities to do so whenever they wish to. Thus, unlike the primal market where proceeds of sale of securities go to the issuer, in the secondary market, proceeds go to the selling investor. The secondary market, therefore, provides liquidity to investors by ensuring easy convertibility of securities into cash.

Securities and Exchange Commission (SEC)
A government agency established by statute to administer securities laws. Such laws usually empower these agencies to regulate the capital market with the primary aim of protecting investors. In some countries, market development is added to their functions.

Securities Market
A market, physical or otherwise, where financial instruments are bought and sold.

Share Certificate
A certificate issued by a company to its shareholders evidencing ownership of a stated number of shares in the company.

Share Transfer Form
A form which has to be completed by investors to facilitate the transfer of shares from seller to buyer.

An individual or institution having ownership interest in a company and thus entitled to certain rights and privileges accruing to holders of equity shares.

Sinking Fund
A special fund created an issuer of a debt security, into which regular payments are made, to meet certain obligations of the issuer such as retirement of the debt.

Market participant who engages in high-risk transactions in anticipation of quick profit arising from price increase. Unlike a risk-averse investor, the safety of principal is of secondary importance to the speculator.

Stock Exchange
An organization which provides facilities for trading in securities by its members and also sets rules for the admission and trading of existing securities as well as rules to guide the business conduct of members.

Stock Index
A measure of stock market trends and performance. It is often used as a barometer for monitoring upswings and downswings in the economy.

Stock Split
The sub-dividing of the shares of a company in order to enlarge the number of shares of the company without a change in the shareholders’ equity, proportional holding, or an increase in the market value of the company at the time of the stock split. A company having outstanding shares of one million and which makes a split of 2 for 1 would have new outstanding shares of two million.

Subscription Price
The price at which a new issue of securities is offered to interested subscribers.Trading Floor
The physical trading area where financial instruments are bought and sold by brokers and dealers in a stock or futures exchange.

Basically refers to the purchase of securities of a company from the stock market with the intention of acquiring sufficient holdings of its shares to control its activities.Yield
The rate of return on an investment.

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