Financial glossary

courtney capital glossary

Get up to speed with our commonly used financial terms:

All share index

A weighted average of the market prices of all shares listed on JSE Limited. The index gives the best indication of general market direction because it includes shares from all sectors of the stock market.

American-style option/warrant

An option/warrant that may be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American-style options.

Asking price

The latest offer price of a share.

At the money

An option is at the money if the strike price of the option is equal to the market price of the underlying security.

Bid price

The quoted price at which a particular market participant is willing to buy.

Call warrant

A contract giving the holder the right, but not the obligation, to buy a share or index for the exercise price/index level at a fixed future date.

CFD

This is an abbreviation that stands for ‘contracts for difference’. A CFD is a derivative instrument that allows geared exposure to movements in the price of an underlying reference instrument. The client gets the profit or loss of the movement in the underlying reference instrument.

Clearing house

An organisation, legally separate from the exchange, which clears transactions and guarantees all trades (see novation). The clearinghouse for SAFEX is called Safex Clearing Company (Pty) Ltd (SAFCOM).

Conversion ratio

The number of warrants that must be exercised in relation to one share or an underlying parcel of shares.

Cost of carry

Cost of holding an underlying security for the period up to delivery under a futures contract.

Derivative

A financial contract where the value is derived from an underlying security or index. Derivatives either trade on a formal exchange or over the counter between parties in an unregulated transaction.

Dividend

The distribution of part of the earnings of a company to its shareholders

Equities

The ordinary shares listed on a stock exchange by a publicly quoted company.

Equity options/warrants

Options/warrants on individual shares.

European-style options/warrants

Means that the option/warrant may be exercised only on the expiry date.

Ex-dividend

The date after which a holder/purchaser of a stock will not receive a dividend payment.

Execution premium

The premium payable by the client to Nedbank Capital when the client physically enters or exits a CFD position.

Exercise price

Fixed price at which a warrant holder may buy (in the case of calls) or sell (in the case of puts) a share.

Expiry Date

Expiry date is the last day on which a warrant may be exercised.

Gearing

Simple gearing is the ratio of the exposure to the derivative price.

Hedge

A conservative strategy used to limit investment losses by effecting a transaction that protects an existing position.

Holder

The purchaser of an instrument.

Initial margin

A relatively small deposit, in comparison to the nominal value of the contract, which both buyer and seller must lodge with the clearing house/issuer as security.

Intermediary fee

A fee charged to Nedbank Capital by brokers on the opening and closing of every position of a broker’s client. This charge is remitted to the broker at the end of each month. It is only applicable to the clients of a broker and has no impact on the ordinary retail client who has no broker.

In the money

A call option/warrant is in the money if the strike price is less than the market price of the underlying security. A put option/warrant is in the money if the strike price is greater than the market price of the underlying security.

Long position

An investor has a long position when contracts are purchased.

Margin change

The difference between the opening margin and the closing margin that represents the margin change.

Margin required

In respect of any margined instrument, an amount calculated as notional value X margin rate.

Mark-to-market (MTM)

The revaluation of a position at its current market price.

Nominal exposure

The reference instrument price multiplied by the quantity.

Novation

The guaranteeing responsibility of a clearing house upon successful matching of a trade. The clearing house is substituted as the seller to every buyer and buyer to every seller on a principal-to-principal basis. For an OTC trade the issuer of the security fulfils the roll of the clearing house.

Offer price (or ask price)

The quoted price at which a particular market participant is willing to sell.

Out of the money

A call option/warrant is out of the money if the strike price is greater than the market price of the underlying security. A put option/warrant is out of the money if the strike price is less than the market price of the underlying security.

Over the counter (OTC)

Term used to describe trading in financial instruments off organised exchanges with the risk that performance by the counterparties is not guaranteed by an exchange.

Overnight long premium

An amount, calculated on a daily basis, equal to the CFD notional value, where the reference instrument price is the close of business value of the reference instrument as determined by JSE Limited, multiplied by a percentage set by Nedbank Capital and applicable to a CFD transaction where an investor buys a CFD, and which percentage will be equal to the SAFEY rate plus a maximum spread of 2%. The maximum spread will be determined by Nedbank Capital, from time to time, based on the underlying market conditions, which are reflected in the SAFEY rate and will be published on the website.

Overnight short premium

An amount, calculated on a daily basis, equal to the CFD notional value, where the reference instrument price is the close of business value of the reference instrument as determined by JSE Limited, multiplied by a percentage set by Nedbank Capital and applicable to a CFD transaction where the investor sells a CFD, and which percentage will be equal to the SAFEY rate minus a maximum spread of 3%. The maximum spread will be determined by Nedbank Capital, from time to time, based on the underlying market conditions, which are reflected in the SAFEY rate and will be published on the website.

Physical (or cash) market

The current market in the underlying security for immediate delivery.

Premium

The fair value of an option contract, determined in the competitive marketplace, which the buyer of the option pays to the option writer for the rights conveyed by the option contract.

Put warrant/option

A contract giving the holder the right, but not the obligation, to sell a share for the exercise price at a future date.

Reference instrument

The underlying listed share whose share price the CFD instrument replicates.

Reserved amount

In respect of a given order on any date, an amount calculated as notional value X margin rate.

Share price

The cash value of a share at any given time.

Short position

Selling a derivative when one does not own the physical security.

Short scrip premium

The premium payable by the client to Nedbank Capital for facilitating the short sale of equities.

SSF

Single-stock future/individual equity future

Strike price (exercise price)

The agreed price per share for which the underlying security may be purchased (in the case of a call) or sold (in the case of a put) by the optionholder upon exercise of the option/warrant contract.

Time value

Additional value of an instrument that represents interest over the term.

Trading capacity

The cash balance in the margin account less the aggregate reserved amount and the aggregate margin required.

Underlying

The physical share upon which a derivative is traded.

Volatility

A measure of the variation in a price over time. A measure of the fluctuation in the market price of the underlying security. Mathematically, volatility is the annualised standard deviation of returns.

Writer

The seller of an option contract.

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