The main index of the French stock market introduced in 1988 with a base value of 1,000 and made up of France's largest 40 companies by market capitalisation.

During trading hours the value of index is calculated on a live basis, changing every time the price of one of its component companies changes.

The theory that certain days of the week, weeks of the month, and months of the year are more likely to produce rises/falls in share prices than others. 'Sell in May and go away' is an example.

David Schwartz, a stock market commentator who has analysed stock prices since the First World War, argues that 'pockets of predictability' can be identified and used to predict future prices. Among his observations:

• 6th June is the best trading day of the year. Prices rise 77% of the time. At the bottom of the rung lies 26th September which rises just 28% of the time over the long run.
• Prices have fallen in eight of the last 10 years during the last week of October.
• The UK stock market usually rises in January in US presidential election years.
• Since 1925, small February price shifts were followed with a rally in the next eight months in 27 out of 30 times.

1. A demand by a company to shareholders to pay a further instalment on partly paid shares.
2. A demand by a bank for the full repayment of a loan when the borrower has failed to meet his/her obligations under the terms of the loan agreement.

1. The overall assets of an individual less liabilities.
2. Money injected into a company by way of share capital and loan capital plus retained earnings.

The value of all the assets employed in a business, including equity and preference capital, fixed and current assets, and gross borrowings.

The most common use of capital employed is in the calculation of 'Return on Capital Employed' which measures the operating profit of a company as a percentage of capital employed. In effect, ROCE is telling you how efficient a company is in squeezing profit out of capital. A company that gets £20m of profit out of £200m capital employed is doing much better than one that gets £20m of profit out of £800m of capital employed.

The amount chargeable to capital gains tax (CGT) from gains made on the disposal of an asset. In the case of stocks and shares, your gain is the difference between the proceeds of selling the shares and the amount you paid for them adjusted for indexation

• In calculating the acquisition cost, you can include including broker commissions and stamp duty. Depending on when you bought the shares, the base cost can be increased through the indexation allowance - a good thing from a tax point of view because the higher your acquisition cost, the lower your chargeable gain.
• In calculating the disposal proceeds, you can deduct commissions and other charges incurred in the process of selling.
• Whether you have to pay Capital Gains Tax on the chargeable gain will depend on whether you have already used up your annual exemption (the amount of gains you can make in any one year without paying CGT), and on the level of your other gains or losses in the tax year.
• Taper relief, which reduces the rate of tax you pay on gains, may also be available, depending on how long you have held the shares at the time you sell them.

Capital gains tax arises as a result of a 'chargeable event' - in the case of stock market investment, the disposal of shares at a profit.

Just because you make a capital gain does not mean you necessarily have to pay tax on the gain. It all depends on your personal tax position, and on whether your total gains for the year are within the annual exemptions. The annual exemption per spouse in the tax year 2005-2006 is £8,500, rising to £8,800 for the 2006-2007 tax year.

The gain you make beyond your annual exemption is added to any other income you may have and taxed as additional income at your marginal rate, be it 20% or 40%.

Whatever the eventual tax position, it is important to keep records that enable you to calculate the gain on the sale of an asset, and ideally your record-keeping should be in a form that lends itself to completing your Tax Return.

The essential information you need for each asset is:

• Base or original cost
• Date of acquisition
• Date of disposal
• Disposal proceeds

When you have this information you are in a position to take advantage of indexation, taper relief, losses and your annual exemption.

In general terms, the increase in value of an asset.

As far as shares are concerned, capital growth is an increase in share price compared to what you paid, and is one of the elements of what investors called 'total return', the other component being income through dividends.

Research has shown that investing in shares over the last 50 years produced a better total return than investments in bonds or deposits, and capital growth has been a major part of that superior performance. There is certainly no guarantee that shares will continue to outperform other investments, but most observers believe that they will over the long term.

Shares which entitle the holder to receive the capital appreciation from a split capital investment trust. The other type of shares in such a fund are income shares which receive the fund's income.

The components which form a company's capital :ordinary shares, preference shares, debentures and loan stock.

In the US, the equivalent components are: common stock, long term debt and preferred stock.

1. The injection of capital into a company.
2. The process by which a company converts its cash reserves into new shares and issues them to existing shareholders on a pro rata basis. Also known as a Scrip Issue, or Bonus Issue. Note that since the effect of a capitalisation issue is to increase the number of shares in the company, the market price of the shares will typically fall to reflect the dilution.

The amount of money which flows in and out of a business, the difference between the two being the important number. If more money flows into a business than out of it, it is cash positive. If more money flows out than in, it is cash negative.

Cash flow is regarded by many as the ultimate test of financial health. Seasoned analysts do not entirely trust the figure a company puts on its profits, since profits can be 'massaged', whereas cash is more difficult to manipulate. Profit, as they say, is a matter of opinion. Cash is a matter of fact.

The best way to check the cash flow position of a company is to scrutinise the cash flow statement in its annual report and accounts. It provides fact on whether a company has generated or consumed cash in the year, and how. It can be used in conjunction with the p&l to assess the trading results, or it can be used in conjunction with the balance sheet to assess liquidity, solvency and financial flexibility.

An expression used to describe the market in the underlying instrument (for example, shares, indices, commodities, etc.) on which a futures or options contract is based. Also known as spot or physical market.

In a cash market the commodity or financial instrument is actually transferred from seller to buyer.

1. Deals on an exchange where investors are obliged to settle immediately rather than on account.
2. An expression used in futures and options trading which applies when physical delivery is impractical and contracts are settled by attaching a monetary value.

The major regulatory bank in a country, usually government controlled.

The UK central bank is the Bank of England; Germany's is the Bundesbank; in the US it is the Federal Reserve System.

Replaced by Child Tax Credit in April 2003, children's tax credit is aimed at anyone with a child under 16, regardless of their marital status. The credit replaced the married couples allowance in April 2001 and is worth up to £545 per year.

The tax credit has been criticised as 'anti family' because a household in which one person stays at home to look after the children will be excluded if the other goes out to work and earns more than £50,000. By contrast, a household in which both work and each earn £30,000 - bringing total household income to £60,000 - will still be eligible.

An internal 'wall' between two departments of a bank or other financial institution which is meant to ensure that conflicts of interest do not arise.

For instance, a bank might have a corporate finance department which advises on takeovers and mergers, and a fund management division which invests client money in shares. If the fund managers were to hear in the canteen about an impending deal, that would be insider dealing. Chinese walls, 'enforced by a bank's compliance department, are meant to ensure that the corporate financiers don't talk to the fund managers about their work.

Unjustified overtrading by a stockbroker or fund manager.

Private clients have long claimed that brokers 'churn' their portfolios, switching in and out of different stocks for no reason other than to generate commission income.

A defensive regulation which some stock exchanges have to limit the damage of a sharp fall in prices. The reasoning behind them is that downward price movements attain their own dangerous momentum and can lead to panic selling. Circuit breakers allow the exchange to suspend trading or in some way limit it to stop things getting out of hand.

On the New York Stock Exchange, for instance, there are rules which allow the exchange to stop trading for the rest of the day if the Dow index falls 30% from the previous day's close.

The rules which govern the management and timing of takeover bids involving companies listed on the London Stock Exchange, written and enforced by the Panel on Takeover and Mergers.

The objective of the City Code is to ensure that high standards of integrity and fairness are maintained, and that shareholders in both bidding and target company are treated equitably.

The Panel is not concerned with the financial or commercial advantages or disadvantages of a takeover, nor is it concerned with competition issues.

The City Code does not have the force of law, but, as the Code says 'those who seek to take advantage of the facilities of the securities markets in the United Kingdom should conduct themselves in matters relating to takeovers in accordance with best business standards and so in accordance with the Code'. It goes on to say that 'Those who do not so conduct themselves may find that, by way of sanction, the facilities of those markets are withheld.'

Panel on Takeovers and Mergers
PO Box 226
The Stock Exchange Building
London
EC2P 2JX
Tel: 020 7382 9026
http://www.thetakeoverpanel.org.uk

A document issued by an adviser/broker to a client outlining the basis of the relationship and the services for which the adviser/broker is authorised. In particular the client agreement will sate:

• what the client's investment objectives are (income or growth, or in between)
• what the client's attitude to risk is (does he/she want low risk, medium risk, or high risk)
• how much discretion the broker has in portfolio management (if any).

Client agreements are legally required before a broker starts acting on behalf of a client.

A collective fund which has a fixed number of issued shares traded on a stock exchange. Because the supply of shares is limited, they will rise and fall in value according to supply and demand just like ordinary company shares. In the UK, this is equivalent to an investment trust.

In contrast, open end funds are allowed to accommodate demand by issuing new shares, so the value of their units does not rise and fall in response to demand, but is more or less equal to the value of the fund's underlying assets. In the UK, this is equivalent to a unit trust.

The closing price is the last price for a tradable instrument at the time the market closes. On the London Stock Exchange:

• For shares traded on the automated SETS platform, the closing price is the last automatic trade price, or the uncrossing trade price at which orders execute during an auction, or a Volume Weighted Average Price (VWAP)
• For SEAQ, SEATS and AIM securities the closing price is the best bid, offer and mid price calculated from market maker quotes at the end of the mandatory quote period.

An asset pledged as a guarantee to a lender until a loan is repaid. If the borrower defaults, the lender has a right to sell the collateral asset.

An example of a type of financial collateral that can be offered is a life insurance policy which has acquired a cash surrender value equal or greater in value to the loan amount. This could be pledged as security.

Payment made to a stockbroker when you buy or sell shares. In general, the level of commission you pay will either be a flat fee (possibly going up in stages according to the size of the deal) or a percentage based on the size of the deal.

An important determinant of the amount of commission you pay will be the kind of service you get from your broker.

1. Discretionary : the broker has general discretion as to how he manages your portfolio
2. Advisory: the broker will contact you to suggest changes in the composition of your portfolio, but he does not have the authority to trade on a completely discretionary basis.
3. Execution only: the broker's primary function is to execute the buy/sell instructions which you give him. He does not give advice either proactively or at your request.

As a rule, execution only brokers are the cheapest for transaction costs.

Basic raw materials and foodstuffs such as metals, petroleum, coffee, grain etc.

Commodities are traded on a commodity exchange both by the companies that use them (e.g. chocolate manufacturers) and by speculators. Futures contracts allow commodity producers and commodity users to bring some predictability and stability to pricing. By buying futures contracts, they can hedge against underlying price changes in the commodity.

In the USA the main ones are the Chicago Board of Trade, Chicago Mercantile Exchange, Kansas City Board of Trade and Mid America Commodity Exchange.

In the UK, commodities are traded on the London Metal Exchange, the International Petroleum Exchange and The London International Financial Futures and Options Exchange which incorporates the London Commodity Exchange.

The department in the London Stock Exchange which is responsible for the Regulatory News Service (RNS). Announcements are submitted to the CAO by a company or its advisers, where they are processed and released to the market via the Exchange's data feed - the London Market Information Link (LMIL).

Information vendors - newspapers and online vendors - subscribe to the LMIL and pick up the news from there.

A financial services sales rep, authorised to give financial advice on life assurance, pensions and unit trusts, but only allowed to recommend products from his/her employer. Unlike, IFAs, therefore, tied agents cannot be assumed to give impartial advice.

Under the Financial Services Act 1986 all financial advisers must tell prospective clients whether they are tied agents or independent, so that the client knows what kind of advice he is getting.

Tied agents are regulated by the Financial Services Authority (FSA).

Literally, the act of complying with rules and regulations.

In the financial markets, compliance with the rules of the SEC and FSA is a major issue for banks, brokers and fund managers. All of these companies have dedicated compliance staff whose job is to make sure that the procedures used in the company's operations follow the prescribed rules.

Penalties for breach can be severe, both in pecuniary terms and in damage to reputation. The 'pensions mis-selling' scandal in the UK is a good example of failing compliance.

Within banks, one of the jobs of the compliance officer is to make sure that people working in the broking department do not find out about deals being worked on by people in the corporate finance department - because if they did, and they acted on that information by buying or selling shares, they would be in breach of insider dealing laws.

The process by which interest earned on an investment is added back to the amount invested, so increasing the amount of 'principal' on which further interest will be earned in future years.

Compounding is sometimes described as the miracle of investing. The fact is that if you reinvest income in your portfolio, you will end up with a much larger amount than if you spend the income as you go along because of the effect of compounding. But to allow compounding to work its magic, you have to start young.

Albert Einstein, when asked what he considered to be mankind's greatest invention, replied 'Compound interest!'

An independent non-profit making, non party political organisation which represents the interests of 250,000 direct and indirect member companies in the UK. The CBI was founded in 1965 by the merging of the Federation of British Industries, the British Employers' Confederation and the National Association of British Manufacturers.

A company which owns a number of other companies with widely diversified activities.

Conglomerates go in and out of fashion. Sometimes the stock market loves them; other times it hates them and demands that they be broken up to 'release shareholder value'. There is never any shortage of consultants showing how this can be achieved.

Aggregated forecasts drawn from a number of different brokers about the likely future earnings of a company.

Broking firms publish forecasts of the future earnings of the companies they follow. Their analysts specialise in certain industry sectors, and often have access to directors and CEOs which private investors do not have. Using their knowledge of the sector, the company, and general economic conditions, they may estimate the profits of the companies for the coming year.

The value of these forecasts for investors is that, if correct, they allow rational judgement about how much to pay for the shares. The problem is that brokers forecasts are not always correct, and if they are wrong, the investor may overpay.

Consensus forecasts may provide a safety net. The idea is basically that instead of relying on the forecast of one broker, you look at the estimates from a cross-section of brokers, and find a consensus. The assumption is that a consensus is more likely to be right.

Some mechanical methods of share valuation, particularly PEGS, rely on brokers' forecasts.

The process by which a company changes the structure of its share capital by reducing the number of shares it has in issue and increasing the par value of each. For instance, a company with 100,000,000 shares in issue having a nominal value of 10p might consolidate on a 1-for-10 basis, reducing the number of shares to 10,000,000 and changing the nominal value to £1. As a shareholder, the number of shares you own would be reduced, their nominal value would rise to compensate, and the market price of the shares should also rise to reflect the greater 'ownership' which each share represents in the company.

Note that a consolidation is the opposite of a scrip issue, in which the number of shares rises, and their nominal value and market price falls

A confirming note, containing details of a stock exchange deal, which is sent by a broker to a client. The contract note shows you:

• the date and time of deal
• the title of the security
• the number bought/sold
• the price paid/received
• the total value of the deal
• the stamp duty (if a purchase of shares)
• the amount of commission charged by the broker

Traditionally, contract notes are posted. Some online brokers email them.

A term which refers to contracting out of S2P (State Second Pension).

A person can contract out by joining an employer's pension scheme which itself is contracted out or through an appropriate personal pension plan. The result of making this choice is that the person's S2P pension will be reduced at retirement but there will now be the proceeds from the alternative pension plan selected.

CFDs are a derivative product designed for active traders who want to have extra leverage in their share trading.

Instead of paying for purchases in full, they deposit a 'margin' with their broker (typically 20% of the total purchase value) and that margin requirement goes up and down in line with the rise and fall of their portfolio. In effect, the investor is able to speculate with much more money that he actually has by borrowing from his broker and using the shares he has bought as collateral. If his investments perform well, he can get rich quicker than if he was not trading on margin. If they perform badly, the broker will demand more margin payments which have to be paid in cash, and the investor may lose significant amounts.

Contracts for differences, or margin trading, are risky, and not for novice investors. Most brokers do not offer a CFD service, and the market is dominated by a handful of brokers who specialise in this area. Margin requirements vary, and most brokers will ask for a deposit of £10,000 before allowing a new client to trade on margin.

The process by which a mutual organisation such as a building society changes itself into a company. Quite often accompanied by healthy payouts to members of the building society, which has attracted the interest of carpetbaggers. Also known as 'demutualisation'.

The process of converting convertible loan stock in a company into ordinary shares. The right to convert is inherent in the convertible loan stock but usually you will only be allowed to convert on a particular date. The company will issue a notice to shareholders telling them when they can convert and telling them the applicable conversion ratio e.g. i.e. how many ordinary shares they can get for each unit of convertible loan stock.

1. The terms which apply when convertible loan stock, for example, a bond or a debenture, are converted into ordinary shares or preference shares. These would include the price and date of conversion which are fixed at the issue date.
2. The terms which apply when a warrant is converted into shares. These would include the exercise price, the date or period of conversion and the number of shares (normally one per warrant) which the warrant holder would be entitled to purchase.

Convertibles are bonds issued by companies which can be converted into ordinary shares or preference shares at a given price at a future date. For example a convertible might pay 6% in income, and give the holder the right to 5 ordinary shares for every £20 of bond value.

They are a popular means of raising capital when interest rates are high, because the interest which the company has to pay on them is lower than on an unconvertible bond (the option to convert is deemed to be worth something to the holder).

From an investor's point of view, convertible bonds can be attractive if the company's stock is volatile because they provide some of the security of a bond whilst at the same time allowing the investor to convert to shares if the company's stock rises.

This rather grand term refers to various things that companies can do which affect the number of shares in issue. Examples are:

• Takeovers
• Bonus/scrip issues
• Share Splits
• Buybacks
• Rights issues
• Consolidations

Most corporate actions will in some way change the number of shares you have, or the ratio of your holding to the total number in issue, or the acquisition cost of your shares for tax purposes.

Corporate bonds are issued by companies to raise capital. They are an alternative to issuing new shares on the stock market (equity finance) and are a form of debt finance.

A bond is basically an IOU - a promise to pay back your original investment (the 'principal') at a maturity date, plus interest payments (the 'yield' or 'coupon') at regular intervals between now and then. The bond is a tradeable instrument in its own right, which means that you can buy and sell it during its life, and its value will tend to rise and fall as interest rates change.

For private investors, the safest way into corporate bonds is to invest in a corporate bond fund which spreads the money from lots of investors across lots of corporate bonds, thus diversifying the risk. As with all funds, you need to choose the one that matches your investment objectives and risk profile. Some bond funds aim for 'high yield' (i.e. high income) but to get it they may have to invest in riskier companies. Other bond funds will aim for more modest income, and will only buy bonds of the most dependable blue-chip companies.

When choosing a corporate bond fund, make you that you find out whether the fund manager's charges are taken from the capital of the fund or from the income it generates. Charges taken from income will lessen the income returned to investors, but will allow the capital to grow, whilst charges taken from the fund's capital will maintain quoted income levels but will reduce the capital.

A fall in the price of shares, either of one company or a sector or the whole market, which is something less than a crash but which is nevertheless fairly steep.

Sometimes corrections are seen as beneficial in taking some of the heat out of overheated bull markets. In other words, they take P/E ratios down to slightly less extreme levels.

The risk inherent in holding shares, bonds or other securities whose fortunes are closely allied with a particular country. If the country goes into an economic downturn, or its debt is subject to a credit re-rating, or international investor sentiment just turns against it, your investments may well lose value even though the underlying fundamentals are unchanged.

Generally speaking, sovereign risk is more of a problem for investors in emerging markets than in developed economies. Of course the very volatility of emerging markets also presents opportunities.

A rating used by banks, insurance companies, mortgage companies and other financial institutions making loans which they use to judge an individual or company's credit worthiness.

Depending on how many points the applicant gets when his/her personal details are run through the rating system, the financial institution will either accept or reject the risk.

Financial institutions rely on highly computerised credit rating systems, and co-operate with each other in providing details of bad credit risks. Hence the concept of the 'black list'.

Crest is an electronic system of settlement for the equities market in the UK and Ireland which was set up in 1996 to replace the Stock Exchange's Talisman system.

For the 1,000 largest companies on the London and Irish markets, Crest matches trades against payments and tells the company's registrars what names to add to the share register and which ones to delete. It does away with the need for endless shuttling of paper certificates.

If you don't want the hassle of share certificates, you can opt into Crest by having your shares registered in the name of a nominee service offered by your broker. Many online brokers will only deal with clients who are willing to adopt the nominee system.

• Your broker sets up a special company called 'XYZ Nominees Ltd'.
• Ownership of all client shares is registered to the company, and the company holds the share certificate, but beneficial ownership is recorded in your name.
• The broker sets up internal systems to ensure that you get the dividends, and that your account statement correctly shows your portfolio holdings.
• You do not normally get the other shareholder benefits - e.g. shareholder perks, reports and accounts - but some brokers can make special arrangements so that you do.

You can also become a member of Crest personally which enables you to deal directly with Crest without having to use a nominee account. You still don't get share certificates but you do get the shareholder benefits that are otherwise denied to you.

To become a member of Crest you have to be sponsored by a broker, who will be charged £20 p.a. by Crest, and who may pass the charge on to you. In April 2002, the London Stock Exchange became the first independent CREST sponsor, allowing investors to have an electronic account with the LSE whilst being able to deal through their own broker.

The key thing about using a nominee account is:

1. It shortens settlement times, which is a good thing
2. It should lead to lower dealing costs
3. There is a potential for fraud, which makes it important that you use a broker who has appropriate insurance cover. (ask!)

When a share is said to be 'cum dividend', it means that it is offered for sale with an entitlement to the next dividend payment attached. This dividend will already have been declared (but not paid) by the company, so the market knows how much it is worth and the share price will reflect this.

At some point shortly before payment of the dividend is actually due, the share will go 'ex dividend', meaning that it is being offered for sale without the dividend. If the current owner sells an 'ex div' share, he will keep the dividend payment. But again, the price of the share will reflect this - it will have dropped from its 'cum dividend' price.

When a company announces a rights issue, existing shareholders get the right to buy new shares, usually at a discount to the current share price. That right attaches to the existing shares and it has a value. In the period after the announcement of an impending issue and before it has been completed, the question is whether the purchaser of existing shares also gets the right to participate in the rights issue or whether that right stays with the vendor.

To cope with this situation the market have developed the system of 'cum rights' and 'ex rights'. When a share is cum rights, it means that it is offered for sale with any associated rights. When it is ex rights it is offered for sale without the rights. The share price of the shares will be higher cum rights than it will be ex rights.

Stock in companies whose profits move in a cyclical manner, normally in phase with the economy. When the economy is prospering, so do these companies. But when the economy goes into recession, these companies feel the pain. Traditional manufacturing industries tend to be cyclical in this way.

From an investor's point of view, cyclicals offer the potential for capital growth if you buy shares at the bottom of the cycle just before an upturn. But getting the timing right is difficult.