1. The difference between the cost price of a product and the selling price.
2. In trading, the amount deposited with a broker in order to obtain credit for purchase of shares or futures. The margin is the price of a security less credit advanced by the broker.
3. The difference between a market maker's buying and selling prices. Also known as spread.

The term given by Benjamin Graham, 'the father of value investing', to the idea that if you buy shares for less than two thirds of their net asset value, you automatically have a cushion against any deterioration in the company's trading position in the future. Put another way, 'buy cheap'.

Graham's view was that it is extremely difficult to accurately predict a company's future earnings. For an investment to be 'safe', therefore, he liked to see a margin between the value of its net current assets and its share price. If the share price was below the net current assets divided by the number of shares in issue, he would consider buying it.

One of the problems with Graham's approach is that in bull markets it is very difficult to find companies that fulfil his criteria. A second problem is that many of the fastest growing companies in modern economies are those whose assets are intangible - for instance, the value of their intellectual property. Under the Graham rubric, these sorts of assets would be excluded.

The additional tax which someone pays on each £1 increase of his or her taxable income. In the UK the tax bands for 2006-2007 tax year are:

• 10% on the first slice of earnings
• 22% on next slice
• 40% on top slice

Under the 'progressive' tax system, once someone's earnings take him into the top tax bracket, any extra earnings will be taxed at the top rate. So someone who is in the 40% bracket has a marginal tax rate of 40%.

The market value of a quoted company which is calculated by multiplying its current share price by the number of shares in issue.

e.g. Company A has 120 million shares in issue. The current market price is 96p. The market capitalisation is a shade over £115 million.

The share prices of companies on the Official List of the London Stock Exchange move constantly in response to supply and demand, and as they move, so do market capitalisations. You can see what the market caps of these companies are by looking at the columns of prices in the financial press every day, or on websites.

Of course, market caps calculated in this way do not necessarily reflect the actual market value of companies, as is shown when one company launches a takeover bid for another and (as frequently happens) pays a premium over the pre-bid price.

Market caps are important for another reason, which is that some of the most important indices (especially the FTSE 100 and FTSE Mid 250) are based on them. Not only that - tracker funds make their investments on the basis of indices.

In the stock market, an index is a device that measures changes in the prices of a basket of stocks, and represents the changes using a single figure. The purpose is to give investors an easy way to see the general direction of stocks in the index.

The FTSE 100, for example , is calculated by taking a weighted average of the share prices of the largest 100 companies on the London Stock Exchange. Launched in 1984 with a base figure of 1,000, the FTSE is calculated continuously throughout the trading day. When the media reports that 'FTSE climbed 37 points today' you don't know exactly which shares in the index climbed and which fell, but you get an immediate idea of the direction of the market.

Index funds base their investment decisions on tracking the companies in a particular index.

A market maker is a dealer on the London Stock Exchange, who acts as a wholesaler (i.e. quotes buy and sell prices to brokers) for the shares in which he is registered to trade as a principal. Market makers fulfil buy and sell orders from brokers, and create a marketplace for the buying and selling of shares to match supply and demand.

The market maker makes a profit by committing his company's capital, aiming to buy low and sell high. There is always the possibility that he may buy high and sell low, thereby incurring a loss.

The market maker who buys 10,000 shares of Marks & Spencer at £2.58 will attempt to sell them at a higher price e.g. £2.60, thereby realising a profit of £200. Conversely, he could sell stock for £2.60 and later buy it back for £2.58, again realising £200 profit. However, market forces can cause the market maker to sell stock at £2.58 then, due to high demand, have to repurchase (recoup his short position) at a higher price of £2.64, thereby losing £600.

Stock prices constantly change, reflecting the supply and demand for those stocks. Low supply and high demand leads to high prices. High supply and low demand leads to lower prices.

The market maker is obliged to honour the price he reflects on screen in the size he is showing. This size is often larger than the NMS, which is the minimum size in which a market maker must quote a two way price.

If a broker wants to buy or sell a larger quantity of shares than the market maker is showing, i.e. showing 5x5 but the broker wants to buy 10,000 shares, the market maker may refuse to trade on these grounds. He is, however, still duty bound to sell the broker a minimum of 5,000 shares at the price shown. Furthermore, he may be able to offer him the full 10,000 shares, but the market maker can name the price.

The price for a security. As far as stocks are concerned, there is not one market price but two:

• the bid price - the price at which you can sell shares which you own
• the offer price - the price at which you can buy shares

On the London markets, prices for most shares are quoted by market makers who act as 'wholesalers', and are flashed up on brokers' SEAQ screens. The quote will also show the maximum order size at which the market- maker is prepared to deal at the prices quoted (known as 'normal market size'). The difference between the bid and offer price is called the spread and is the source of the market maker's profit.

Prices for the largest companies are quoted on the Stock Exchange Electronic Trading Service (SETS) which matches sellers and buyers directly and does without the need for market makers. The spread on these companies is normally smaller.

Market prices are quoted on the financial pages of most newspapers and on many websites, sometimes live, sometimes delayed by 20 minutes. In the newspapers, the price quoted is neither the bid nor the offer price, but the mid price at the time the market closed on the previous day. So if a share closed at 105-109, the mid price would be 107. On some websites the price quoted is the 'last trade' price -that is the price at which the last automated trade on the previous day was made.

The department of the London Stock Exchange which ensures that trading in listed companies takes place in an orderly and fair manner.

The Supervision department monitors trading patterns and ensures compliance with the Exchanges trading rules, while Surveillance investigates possible abuses such as fraud, market manipulation and insider dealing.

These services, together with the Exchanges Regulatory News Service reassure companies and investors that the Exchanges regulatory framework is maintaining the integrity of the market.

A system of share trading which relies on matching sale orders with corresponding orders to buy.

Because there needs to be a buyer for every seller, and vice versa, the marketability of shares which are traded on a matched bargain basis can be poor. In other words, you may not be able to buy when you want to buy, and if you own shares you may not be able to sell when you want to sell. This is known as illiquidity, and is a very negative attribute.

Shares traded on the London Stock Exchange are more liquid because they are traded either on the order book (SETS for the very largest companies) or on the quote book (SEAQ).

• The capital repayment date of a bond.
• Also the end of the term of an endowment assurance policy.


See also bond;

• must offer investment in shares, including unit and investment trusts.
• may offer the cash ISA component, but doesn't have to.
• has an overall subscription limit of £7,000 in any one tax year.
• has individual component limits in any one tax year as follows:
• cash: up to £3,000
• shares: balance up to £7,000

If you take out a maxi ISA, you cannot also take out mini ISAs or another maxi ISA in the same tax year.

The expressions 'short term', 'medium term' and 'long term' mean different things in different contexts and, indeed, they mean different things to different people. In general, the stock market uses the terms as follows:

• short term - anything from 1 week to 2 years
• medium term - anything from 2 years to 5 years
• long term - anything from 5 years to 30 years!

One of a trio of terms in common use, the others being 'small cap' and 'large cap'. Everyone agrees that the terms refer to market capitalisation, but no-one can agree what the thresholds are. Mid cap, for instance, can refer to companies with market capitalisations of £500 million or as much as £3 billion.

Of course, market cap is a moveable feast, as it is calculated by multiplying the number of shares in issue by the share price, and share prices are continually changing. If an AIM company is recommended in the Sunday newspapers, and its shares rise 30%, its market cap might leap from one side of the threshold figure to the other. Overnight it could turn from a small cap to a mid cap.

• You don't have to open both. You could, if you want, just open a cash mini ISA.
• You cannot have two mini ISAs investing in the same component in any one tax year - for instance, two cash mini ISAs.
• 16 and 17 year olds can shelter up to £3,000 in a cash mini ISA but cannot invest in the shares component.
• You cannot switch between the types of investment held in a mini ISA - for instance, use the cash in a cash mini ISA to buy shares.
• You cannot open a mini ISA and also have a maxi ISA in the same tax year.
• If you want to invest more than £3,000 in stocks and shares, you need to open a maxi ISA rather than a mini ISA, since the limit in a maxi ISA is £7,000.
• The mini ISAs can either be run by the same manager, or you can choose a different manager for each.

A rule introduced in the wake of the Maxwell pensions scandal which was intended to ensure that company pensions funds always had enough assets to pay out their liabilities (i.e. pensions to retired members of the scheme).

The legislation uses the yield from long term gilts as the yardstick by which a pensions fund's liabilities are measured. To stay within the rules, funds have felt obliged to buy these long-term bonds, with the result that their price has gone sky high.

One alternative being considered is to change the whole way liabilities are valued and, in effect, to allow the funds to invest in more exciting securities than gilts, but to couple this with an insurance fund that bails out those funds that are unable to meet their liabilities. This insurance fund would be called the Central Discontinuance Fund (CDF).

The total amount of money in an economy at a given time. In the UK the main measures of money supply are:

1. M0: Sterling notes and coins in circulation outside the Bank of England including those held in tills of banks and building societies plus banks' operational deposits with the Bank of England. Also known as narrow money.
2. M4: M0 plus all sterling deposits at UK monetary financial institutions held in the M4 private sector. Also known as broad money.

Moving averages are one of the oldest and most popular of technical analysis tools. A simple moving average is calculated by adding together the closing prices of a financial instrument over a certain number of days and then dividing the sum by the number of days involved. So, for example, the seven day average for a share price would be calculated by taking seven days worth of data, adding them together and dividing by seven.

To calculate the *moving* average:

• Start by taking the first seven days worth of data and calculating the average value. This is your first point on the moving average chart.
• Then add the prices for Days 2-8 together and divide by 7. This is the second point on your moving average chart. Continue doing this for Days 3-9, 4-10 and so on, each time plotting the average on the chart. You now have a moving average chart.

There are lots of ways of interpreting moving averages. The most basic is to treat a change of direction in the moving average as a signal to buy or sell, so if the moving average has been consistently rising and then it falls, that is a signal to sell.

The classical interpretation, used by most technical analysts, is to compare the moving average with the price of the underlying share and to plot them both on the same graph. Before the share price rises above its moving average, buy the share; when it falls below its moving average, sell the share. That is putting it in extremely simple terms, and for a more sophisticated understanding, read one of the many books on the subject.

An analyst would normally also consider other types of indicator before making a decision.

A technical analysis indicator developed in the 1960s by Gerald Appel which uses moving averages to indicate buy and sell opportunities. In very simple terms, it works like this:

• Take the difference between the 12 day moving average and the 25 day moving average over a period, and plot the figures on a chart.
• Draw the 9 day moving average of the previous calculation for the same period on the same chart. (known as the 'trigger line')
• Sell when the first line falls below the trigger line, and buy when it rises above.

MACD works best on volatile stocks, however an analyst would take other indicators into account before making a decision.

In the US, a collective investment scheme, operated by an investment company, which enables small private investors to invest in a diversified portfolio of shares, bonds and other securities.

It is known as an open end fund since there is no fixed amount of capital in the fund. If new investors want to invest in the fund, it can issue new units and accept their money into the pool. If they want to turn their investment back into cash, it can cancel their units. The number of units in the fund, and the amount of money invested, goes up and down according to supply and demand.

Funds are managed by professional fund managers who invest in securities to achieve the trust's objectives such as capital growth, income or a combination of both. Shares purchased from brokers are called load funds and those purchased direct from the fund company are called no load funds. Shares when sold are redeemed at their net asset value. There is a wide range of funds with a variety of objectives available in which to invest including capital growth and income. Similar to a unit trust in the UK.