The theory espoused by French Mathematician Louis Bachelier in 1900 which posits that past share prices are of no use in predicting future prices.

According to the theory, share prices reflect reactions of the market to information being fed into the market completely randomly. Since the information is coming in randomly, the price movements they cause are no more predictable than the steps of a drunk.

Random walk theory is diametrically opposed to technical analysis. The theoretical underpinning of technical analysis is that markets react in a consistent way to share price movements. By looking at charts of past price movements, investors can identify patterns which have occurred before, and can anticipate future price movements because the market tends to react in the same way.

The classification of the quality of bonds by various rating services.

A bond is basically an IOU - a promise to pay back your original investment at a later date, plus interest payments at regular intervals between now and then. Like all IOUs, its credit-worthiness depends on the borrower. There are broadly three types of borrowers:

1. Governments of leading nations
   These can be relied on to honour their obligations to bondholders. The UK government has never defaulted, i.e. failed to pay interest or principal, on its bonds. These are known as gilts, from the old days when gilt-edged certificates were issued. Your pension fund has to buy these to guarantee they will be able to pay you an annuity when you retire.
2. Companies
   These are always regarded as more risky than gilts, because companies sometimes default. But obviously, the stronger they are financially, the less likely this is. Rating agencies like Moodys and Standard & Poors give ratings to bonds, so you can tell how risky the market thinks they are. AAA is the safest category. Anything in the B category or below would be too risky for the average investor.
3. Governments of developing nations
   These have proved to be very unreliable in the past. For example, Russia, Mexico and Brazil are all previous defaulters. Investing in this type of bond is strictly for risk-takers.

For information on the credit rating services of Moodys, S&P and Fitch IBCA, see 'bond rating'.

In the US, a publicly traded investment trust which invests the capital of its shareholders in real estates.

• Some REITs, called 'Equity Reits', take equity positions in real estate, receiving income from rents and capital growth from selling buildings.
• Others specialise in lending money to property developers, their income coming from interest payments on those loans.
• Hybrid REITS do a mixture of equity investing and property lending.

REITs enjoy special tax advantages provided 75% or more of their income comes from property and 95% or more of their net earnings is distributed to shareholders annually.

A reference made to actual time in a computer process. For example a company selling a product in varying volume and using a computer real time process would be able to establish from any of its terminals the balance of stock immediately after any sales through any of those terminals.

In share trading, real-time prices means the live prices of shares made available on a computer screen the moment they are updated on the stock exchange systems.

A body which regulates the practice of a profession such as the Institute of Chartered Accountants, The Law Society, the Institute of Actuaries and the Insurance Brokers' Registration Council.

Companies which are members of such bodies may be authorised by their RPB to conduct investment business via powers delegated by the Financial Services Authority (FSA). Those companies may currently conduct investment business up to a limit of 20% of their income from their main practice.

Yield calculations on bonds aim to show the return on a gilt or bond as a percentage of either its nominal value or its current price. There are three types of yield calculation that are commonly used:

1. Nominal Yield
   This is calculated by dividing the annual income on the bond by its nominal or 'par' value. So the nominal yield on a £100 bond which pays 5% interest per year is 5/100 x 100 = 5%.
2. Current or 'Running Yield'
   This is calculated by dividing the annual income on the bond by its current market price. So if the market price of the £100 bond dropped to £95, the current yield on the bond at that time would be 5/95 x 100 = 5.26%. Note that as the market price of a bond drops, its yield goes up.

3. Redemption Yield'
   The Redemption Yield shows what the total return on a bond would be if held to its maturity date. It reflects not only the interest payments a bondholder will receive, but also the gain/loss he will make when it matures. The income element is the same 'current yield' calculation performed above. The gain/loss element is calculated by taking the difference between the current market price and the nominal value of the bond (e.g. in our example 100 - 95 = 5), dividing it by the number of years til maturity (assume 5 years for simplicity, so 5/5 = 1) and then dividing that figure by the current price of the bond (1/95 x 100 = 1.05%) The yield to redemption is the sum of the current yield (5.26%) and the capital yield (1.05%) = 6.31%.

Registrars are commercial companies that maintain the register of shareholders for quoted companies. Traditionally, they would have to deal with the cancellation and reissue of share certificates, but as increasing numbers of shareholders use nominee accounts this burden is reducing.

Registrars may also be paid by their client companies to send out company communications with shareholders and process responses.

Relative strength compares the percentage gain in the price of a share to the percentage gain of a chosen index over the same period.

An index is simply a weighted measure of a basket of shares. So if you were looking at the relative strength of Boots plc, you could compare its performance to:

• FTSE All-Share Index (the index for the whole London market)
• FTSE 100 (the index of the largest 100 companies on the London market by market capitalisation)
• FTSE Actuaries Industry sector index (this might look only at retailers, for instance)

If a company's share price rises in any period by more than the comparative index, it is said to have positive relative strength. If it falls by more than the index falls, it has negative relative strength. Of course, just because a company has positive relative strength in one period or against one index, does not mean it will have positive relative strength over a future period or against a different index.

A widely used index which compares a company's share price to a broadly-based market index like the FTSE All-Share. The point of the comparison is to show whether historically the company share price outperforms or underperforms the index.

Because the RSI is a ratio, it will increase as a share moves higher relative to the market, and decrease as the share moves lower relative to the market. Its main use is to enable investors to avoid shares that have a history of relative underperformance and to chose those that have a history of relative outperformance.

In commercial charts, the RSI is usually superimposed on the bottom third of the share price chart, or sometimes in its own box underneath the main chart.

The repo market is one in which two participants agree that one will sell securities to another and make a commitment to repurchase equivalent securities on a future specified date, or on call, at a specified price. In effect, it is a way of borrowing or lending stock for cash, with the stock serving as collateral.

The definition of a person's status when living or working outside the UK with regard to his/her taxation liabilities. This can be:

1. Resident in the UK, which applies if:
   • The person spends more than 183 days are spent in the UK in any tax year.
   • The UK is visited on a continuing basis where the average visiting time is over 3 months taken over 4 consecutive years.
   • The person is a British or Irish subject who is ordinarily resident in the UK and occasionally resident abroad.
2. Ordinarily Resident in the UK, which applies if:
   • The person resides in the UK on a permanent basis.
3. Domiciled in the UK
   There are a number of types of domicile, that is, domicile of origin, domicile of dependence and domicile of choice. This is a very complicated aspect of general law and advice should be sought when dealing with these matters.

A price level identified by technical analysts at which persistent selling of a share or commodity takes place.

If the share price history of XYZ company is plotted on a chart, and the chart shows that the share never seems able to rise above £4.20 or fall below £3.60, then the resistance level is £4.20 and the support level is £3.60.

The significance of this is that if the share price does break through those barriers, that may indicate a change of market sentiment towards the share, and may indicate the arrival of a new trading range. If the technical analyst is right in making this observation, he can buy or sell accordingly and make a profit.

A measure of a company's profitability. It may be defined as:

• Earnings before interest and tax divided by total capital employed plus short term borrowings minus total intangibles.

ROCE takes all the assets employed in the business, including borrowings, and measures the return the company made on them. If a company has a low ROCE, it is using its resources inefficiently, even if its profit margin is high.

Calculation: multiply operating profit by 100, and divide the result by total capital employed

Example: Company A made an operating profit of £897m on total capital employed of £4,342m. ROCE was therefore (897 x 100) / 4,342= 20.66%

Yardstick: A company's ROCE should be higher than the return on gilts (the benchmark for a risk-free investment return). And unless it is higher than the cost of borrowing, any increase in the company's borrowings or the general level of interest rates will reduce shareholders' earnings. A ROCE of 20% or more is considered very good.

The adjusted profit of a company divided by its equity. For instance, if the adjusted profit of a company is £1m and Equity is £10m, the Return on Equity is 10%.

Adjusted profit is the profit of the company adjusted to exclude the impact of non-recurring exceptional gains, losses, income and charges. The figure can be found in the company's Profit and Loss Account. Equity is the total of ordinary share capital plus reserves, and both figures appear in the company's Balance Sheet. In calculating Return on Equity, you can use the Equity at the end of the year or the average between the opening and closing equity.

A measure of how good a company is at 'squeezing' earnings out of the assets employed in its business, which is calculated as follows:

• Return on assets = (profit before interest and tax) / (fixed assets + current assets)

If you are using this ratio to evaluate a company, you need to consider what kind of business the company is in. 'People' businesses, such as advertising agencies, need very few capital assets compared with a manufacturer which typically needs to invest large amounts in plant and equipment.

In general, a return of 12% is adequate and a return of 16% or more is considered good.

A bonus added to the sum assured (or basic sum assured) of a with profits life assurance policy out of a life company's surplus profits usually on an annual basis. These bonuses are payable at the end of the term of the policy (that is, at maturity), or on prior death of the life assured. Once allocated, their values are guaranteed provided premiums are paid up to maturity or death.

The values of such bonuses are usually related to the sum assured and can be either simple reversionary bonuses (related to the sum assured only) or compound reversionary bonuses (related to the sum assured plus bonuses to date). Reversionary bonuses may sometimes be taken in cash at the time they are declared but the values will be significantly lower compared with leaving them until maturity.

An offer made by a quoted company to its shareholders to enable them to buy new shares in the company at a discount to the market price.

Existing shareholders are usually offered shares in proportion to their existing holding. For example in a one for five rights issue, a shareholder would be invited to buy one new share for every five shares already owned. The new shares are offered at a discount to the current market price and because of that the rights have a value in themselves and can be separately sold.

For capital gains purposes, the shares acquired following a rights issue are deemed to have been acquired at the same time as the original shares.

Shareholders who hold a company's shares in a PEP, ISA or SIPP account can only take up their rights if they have sufficient funds in those accounts to exercse the rights.

Comparison of the returns which can be earned from different types of financial instruments (bank deposits, bonds, shares, unit trusts, investment trusts, property) and the risks that are attached to them.

• Gilts (government bonds) are considered to be the safest investment of all, in the sense that the government is most unlikely to default either on the interest payments due, or the return of your capital. But the interest payable on gilts is relatively low, and may fail to keep pace with inflation.
• a capital sum deposited with a bank or building society is also very safe since it is unlikely that either will fail to pay the interest on the deposit or to return the capital.
• investment in equities (shares, mutual funds, unit trusts, investment trusts etc) will normally over the long term give greater returns but the risk is much higher. In the short term they could easily fall in value.

Investors are often advised to build a balanced portfolio of investments to include low risk deposits for safety (bank deposits, bonds) and longer term higher risk instruments, such as equities, for greater potential growth.

A term used by the London Stock Exchange to denote either:

1. that a trade was reported as a riskless principle transaction between two non-members, where the two transactions are executed at different prices or on different terms (requiring two separate trade reports)
   or
2. that a market maker is reporting a riskless principle transaction where the two transactions are executed at different prices.

Settlement is the process by which investors pay for shares they have bought and receive payment for shares they have sold. Before July 1994, this process was done by means of an 'account period', normally ten working days. All the transactions during that period were balanced against each other to produce a single figure, which was either paid to the investor or due from him, depending on whether the value of his purchases was higher or lower than the value of his sales in the period. One of the features of the account period was that transactions taking place at the beginning of it (say, Day 1) didn't have to be settled until about 14 days later, whereas transactions at the end (say Day 10) had to be settled within 4 days.

In July 1994, the account period system was replaced by ten day (T+10) rolling settlement, which means that each transaction has to be settled ten days after the transaction date. This was subsequently reduced to five days (T+5) and in February 2001 was reduced to three days (T+3).

These significance of rolling settlement and of shortened settlement times is that when investors sell shares, the proceeds get paid into their account quicker, and when they buy shares they have to pay for them quicker. It requires careful money management on the part of the investor.

1. The transferring of funds from one investment to another such as rolling over the proceeds from a bond which has matured into another bond, or the rolling over of the proceeds of a share sale into a tax-efficient investment vehicle like a Venture Capital Trust.
2. The term used when a borrower obtains authority from a bank to delay a principal payment on a loan.
3. The movement of a futures or options position from one delivery/expiry month to a further dated month by trading out of the existing position and simultaneously trading into the further dated month.