Glossary

The finance industry likes to use a lot of fancy terms and this can make you feel like you can’t invest if you don’t understand them. We don’t think that’s fair, so we are working really hard to make The Big Exchange a jargon-free zone. When in Rome, though, sometimes you have to speak a little Latin. To help you translate, we have simplified some of the key terms you may see or hear below. Search or scroll through to learn more.

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  • Analyst

    A financial professional who analyses companies or other investments to determine their values. An analyst is more junior than portfolio manager. They are tasked with covering a number of companies and reporting back to their teams with any ideas.

  • Annual Management Charge

    The annual fee charged by the investment managers to you to cover the cost of running the fund.

  • Annualise

    Measuring something on a yearly basis. Over 12 months basically. If it costs £20 million a month to run a football club, the annualised cost is £20 million x 12, or £240 million because there are 12 months in a year.

  • Bond

    A bond is like offering your friend a £100 loan which they promise to pay back in full at the end of the year plus a monthly fee of £2 for the service you’ve provided. Throughout the year, every month (hopefully) you would get £2 from your mate and at the end of the year; your mate would give back the £100. Therefore you have got £2 x 12 months plus £100, therefore £124. Lovely jubbly.
    However, not all bonds get paid back and when that happens it’s called a default… That’s bad; see more on that under default.

  • Benchmark

    A benchmark is something that both fund managers and investors use to measure how the investment is doing. It is a bucket of similar companies to the investment strategy and is used as a point of reference to check whether the investment is actually doing what it promised!

  • Capital

    Your cash, a business’ cash, anyone’s cash.

  • Compound Interest

    The ultimate way to grow your money! The concept of compound is much like a snowball rolling down the hill - as your snowball gets bigger there is more of it to benefit from the snow on the ground. Similarly, as your money gets bigger there is more of it to benefit from interest.

  • Debtors

    People who owe you money... Your colleague who you lent a tenner is most definitely a debtor. Having too many debtors is often seen as a bad thing.

  • Default

    A default is essentially when you fail to do something which you have agreed to.
    In the investment world, this usually relates to not paying back on bonds and loans. If you agree to pay someone £2 every month for 2 years and stop after 4 months you have defaulted on your agreement. People normally get pretty unhappy about this... rightly so!

  • Dividend

    This is a payment made by the company to its shareholders usually out of its profits. If a company declares a 50p per share dividend and you own 100 shares, as a shareholder you will receive : 100 divided by 50p, equals £50.

  • Drawdown

    Drawdown is a bit of a negative one. It is the measurement of how much an investment goes down in a single time period (1 day). This is also used as a way to look at risk, if a fund has a high max drawdown it is seen as more risky than one with a low drawdown.

  • Earnings

    The amount a company says it has earned after paying all its costs. Having strong earnings is usually a good sign!

  • Equity

    This is a rather fancy name for the shares in a company. If you hold equity (i.e. have some shares in a company) you are the proud owner of some of that company. On The Big Exchange however, it is the funds themselves which are shareholders of the companies they invest in, not you...

  • Environmental, Social, and Governance (ESG)

    These three letters appear a lot on the world of investing and some people who work in the industry don’t even know what they stand for! For the last 30 years, the integration of ESG into how professionals manage your money has made a real difference, but what does it all mean?
    To be honest, these three letters explain to different degrees how an investment manager is taking into account the risks Environmental, Social and Governance pose to the investments. By looking at the portfolio through an ESG lens, a fund manager can see risks they might not have seen otherwise.

  • Financial Conduct Authority (FCA)

    The regulator for the financial services industry. Kind of like the investment police – keeping all us little people safe.

  • Fund

    This word appears a lot on The Big Exchange. A fund is a pooled collection of investments, owned by one or more investors, that is managed as one entity by one or more managers. This sounds quite complex, realistically we know it as the bucket of companies the fund manager chooses to invest in.
    A fund is managed by an expert manager and sits under all of the risk and governance framework of a big corporate firm so you can be sure it is always looking out for you.

  • Gross

    The payment of any form of income without taking costs or tax off. If in doubt, always look at the NET number for a true reflection taking into account all costs and taxes.

  • Growth

    An increase in the value of an asset.

  • Income

    The return from an investment on a sustainable basis.

  • Index Tracker

    A fund follows a given stock market index such as the FTSE 100 or the FTSE-All Share Index. It is impossible for a passive manager to have as much impact with a company as an active manager.

  • Inflation

    This refers to how much value your £1 loses over time. If you had £1 in your pocket in 2010 it could have bought you 10 Freddos. If you had that same £1 today it would only buy 4 Freddos. That’s inflation in action!
    Investing is one of the ways to make sure that your pound coins hold their value as time goes by.

  • ISA

    See our page on ISAs here but essentially think of them as a Tax-free place to store your investments.

  • Liquidity

    The easier it is to turn an asset into cash, the more liquidity it has.

  • Ongoing Charge Figure ( OCF)

    An OCF is the industry’s most precise measure of telling you what it costs to invest in a fund. It is made up of the annual management charge (AMC) and some other costs of maintaining and operating the fund.

  • Revenue

    The money a company makes from selling products or services.

  • Risk

    Can you afford to take it? It will more often than not affect the return on your investment. See more about risk here.

  • Share

    Something you can buy so that you own part of a company. Buying 1 share of Apple means I own 0.00001% of the company... but I still have to pay for a phone!
    When you purchase a share of a company and become an owner you get 2 rights:
    1 The right to go to an Annual General Meeting and place your vote, and
    2 The right to receive a payment of the company’s profits should the company decide this is the correct thing to do. This is called a dividend
    Having a share in the company is the same as holding equity in it. It is important to know that buying a fund doesn’t mean you personally are a shareholder in all of the companies, in this case, the fund manager is the shareholder.

  • Shareholder

    If you personally buy one share in a company, you can call yourself a shareholder. Your fund manager might be a shareholder and with this right, they can go to the annual meeting and quiz the management team about why they aren’t hitting financial or social objectives.

  • SIPP

    Self-Invested Personal Pension. Like an ordinary pension but the plan holder, i.e. you, determines what you are going to fill the plan with. Hopefully some of our impact funds...

  • Tax

    Something we all have to pay at some point (but not in your ISA or JISA). However, don’t avoid it or try to not pay it - it pays for our hospitals, roads and other important things!

  • Total Return

    The number that most investors care about. This is the total amount the investment has gone up or down over a certain period of time.

  • Volatility

    How much the price of something tends to move. The more the price jumps about, the more volatile something is. This works for shares as well as everyday purchases. Let’s take milk and petrol for example. Milk prices in the supermarket are pretty stable and can be called “less volatile” than the price of petrol in the petrol station which tends to hop around a lot and is therefore more volatile than the milk.
    Volatility is often used as a measure of risk and is a part of our risk summary.

  • Yield

    Yield is normally something we see on the upside down triangle sign when we are driving. Helpfully, (or not) it means something totally different here... To give an example, We have an £100 investment with a 2% yield.... Yield is therefore the £2 income every month displayed as a percentage of the whole pie. So, in this case £2 divided by £100 = 0.02 which is the same as a 2% yield.

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