Convoy Investment Services Limited

Glossary

A│ B │ C│D │ E│ F│ G│H│I│J│ K│ L│ M│N│ O│P│Q│R│S│T│U│V│W│X│Y│Z

A
Acquisition	A company buys another company’s stock.
American style option	An option which can be exercised anytime during its life.
Analyst	Analysts are typically employed by brokerage firms, mutual funds or investment banks who are financial professionals having expertise in evaluating investments. They often put? "BUY" "SELL" and “HOLD" recommendations for securities.
Arbitrage	Profiting from differences in yield or prices in different markets.
Ask	The lowest price which an investor has declared he is willing to sell a specified stock at.
Ask price	The economic value of an item owned by an individual or corporation.
Assets	An option which strike price equals the market price of the underlying security.
At-the-money	Free of charge
B
Basis point	One hundredth of a percentage point(0.01%). It is often used to measure changes in yields on fixed income securities, or bonds.
Bear	An investor who believes a stock, or the overall stock market is about to fall.
Bear market	A prolonged market condition in which prices of securities keep on falling, accompanied by a widespread pessimism
Bid price	The highest price an investor is willing to pay for a security.
Bid-asked spread	The difference between the current bid and current ask.
Blue-chip company	Large companies with solid record of earnings.
Breakout	A price movement through a level of resistance or support. Traders will buy the stock when its price level smashes the resistance level and sell the stock when it dips below the support level.
Broker	An individual or firm which acts as an intermediary between buyers and sellers and makes profit by charging commission from both parties. The trading activities include securities, commodities, currencies, etc. A license is required.
C
Call option	An agreement which gives its buyer a right, but not obligation, to buy a security, bond, commodity or other instruments at a specified price within a specific period of time.
Capital	Cash or fund used to generate income.
Capitalization	The market value of a company, calculated by multiplying the earnings per share by its number of shares outstanding.
Cash markets	A market where securities and commodities are traded for cash and delivered immediately.
Commission	A fee charged by a broker for his services in facilitating a transaction. The charge depends on the amount of securities/ options, or the value of the investment instruments.
Custodian	An institution which holds and safeguards an investor’s assets. It can be an agent, bank or trust company.
Custody	Legal responsibilities for the assets of an investor.
D
Day order	A buy or sell order which will automatically expire if it is not executed during the trading day.
Day trading	The order of buying or selling specified securities within a trading day.
Debt/ equity ratio	A measure of a company’s financial leverage which indicates the proportion of debt and equity it is using to finance its assets.
Dividend	A portion of a company’s earning distributed to its shareholders.
E
Earnings per share	Total earning divided by the number of shares outstanding.
Equity	The net asset value of a company, which equals the difference between total assets and total liabilities. It also includes the common stocks and preferred stocks
European style option	An option which can only be exercised at its expiration.
Exercise	A privilege offered by a company or financial institution to subscribe or sell relevant securities.
Exercise price	The specified price at where an option contract can be exercised. A call option holder can buy the underlying asset or security while a put option holder can sell the underlying asset or security.
Expiration	The date on which an options or futures contract is no longer valid.
Expiration date	The last date on which an option (American) can be exercised.
F
Futures	A standardized contract which requires delivery of commodity or bond at a specified price on a specified future date.
G
Gearing	The ratio of a company’s long term debt to its total equity.
Good 'til cancelled	A buy or sell order which remains effective until it is either exercised or cancelled.
H
Hedge	An investment to lower the risk of adverse price movement in a security, by taking an offsetting position, such as an option or a short sale.
Holding company	A company which holds a certain amount of shares in another firm to control the management and operation by electing and influencing its board members.
Hot money	Money that flows between international financial markets in search for the possible highest short term interest rates.
I
Initial margin requirement	The amount money or securities an investor must pay for when doing margins.
Initial public offering, IPO	The first sale of a company’s shares in a stock exchange.
Insider information	Material information about a company's activities which has not been revealed to the public. It is illegal for anyone with access to the information to make trades based on it.
Institutional investors	Entities with huge amounts to invest, such as mutual funds, insurance companies, pension funds, brokerages and investment banks.
In-the-money	A call option’s exercise price is below its underlying asset’s market price, or a put option’s exercise price is higher than its underlying asset’s market price.
Investment	The purchase of a financial product with an expectation of future returns.
Investment bank	An institution which acts as an agent for corporations issuing securities. It also helps facilitate mergers and acquisitions among companies, private equity placements and corporate restructuring.
J
Joint account	An account owned by two or more people.
Joint venture	A cooperation of two or more individuals or businesses, to control, share profit and loss in a specific enterprise.
L
Last trading day	The final day during which trading may take place in an option/futures contract.
Lead manager	An investment or commercial bank which is responsible for organizing a given credit or bond issuance. The bank would access market conditions and negotiate terms with the underwriters and the issuer.
Lead underwriter	An investment bank or a consortium comprises of investment banks which is primarily responsible for organizing initial public offerings and bond issuance.
Leverage	The degree to which an individual or company is utilizing borrowed funds.
Liabilities	A company’s debt or obligations that arise during its course of operation.
Listed stocks	Securities which are traded in the Hong Kong Stock Exchange.
Long	The state of owning a security, commodity or contract.
M
Margin	Borrowed money which is used to buy securities, futures or options. It aims to lower the risks associated from contract infringement.
Margin call	A broker’s request on an investor using margin to deposit additional money so that the margin account is brought up to the minimum maintenance level.
Market	The market where shares are issued and traded. It can be divided into two segments: primary and secondary market. The two markets trade different kinds of shares.
Market price	A security’s current bid and ask price which is determined by buyers and sellers in the market.
Market value	A security’s current bid and ask price.
Merger	The combining of two or more companies. Asset and liabilities of the involved parties will be merged into one entity.
N
Net Asset Value	The total assets of a company less all its liabilities including its loan capital and preference shares.
O
Odd lot	Less than one board lot of a stock.
Offset	To enter an opposite, but equivalent futures position so as to eliminate the delivery obligation.
One-way market	A market which is moving in one direction.
Open interest	The amount of options or future contracts before execution. It is used to indicate their mobility in the market.
Open order	A buy or sell order which remains effective until it is either terminated or executed by the customer.
Opening price	The price at which a stock first trades upon the opening of a stock exchange.
Option	The right to buy or sell a specified asset at a specified price during a period of time.
P
Portfolio	A string of investments which include securities or other financial products.
Position	The amount of securities either possessed (long) or borrowed(short) by an investor.
Price-Earnings Ratio, PE Ratio	A common measure of how expensive a stock is.Calculated as: The higher the ratio suggests the more the market is willing to pay for each dollar of annual earnings. In general investors prefer stocks with low P/E ratio.
Q
Quotation	The highest bid price currently available for a security. Also the lowest ask price for the same stock.
R
Range	The difference between transaction prices of a given security during a given period of time.
Repo	A contract in which the seller of securities agrees to buy them back at a specified time and price, also called buyback or repayment agreement.
Return	The gain obtained from annual investments.
Risk	The chance that an investor’s actual return will be different from expected.
S
Selling short	The selling of securities which an investor doesn’t own, in anticipation of its price will drop in the near future. By then he can buy back the securities and return them to the broker.
Settlement	Delivery of certificates in exchange for payment following a securities trade.
Settlement date	The date by which a securities transaction has to be settled.
Share repurchase	A company buys back the shares it owned in the market.
Shares	A unit of ownership interest in a company.
Speculator	An investor who takes large risks in the hope of making quick and huge gains.
Stop order/ stop	An order to buy or sell a stock when its price surpasses a specified level.
Stop-loss order	To limit an investor's loss on a security position. It refers to an order placed with a broker to sell a security when it reaches a specific price level.
T
Takeover	A company acquires control of another company by buying its stock.
Thin market	A market with low transaction volume.
Trade	A transaction which involves buying and selling of a security verbally or electronically.
Trader	An individual who engages in buying and selling of securities either for himself or on behalf of someone else
Trading range	The spread between the highest and the lowest prices during a period of time.
Transaction costs	The costs incurred when buying and selling assets or securities, particularly refers to stamp duties and brokers’ commissions.
Turnover	The total number of transactions recorded in a period of time. It can refer to the transaction volume of securities, bonds, futures or options.
U
Underlying	The security or commodity that will be delivered when an option contract is exercised.
V
Volatility	A measure of return dispersion for a stock or market index. The higher the volatility, the riskier the return. It is commonly used as a measurement of risk.
W
Warrant	A certificate which entitles the holder to buy a specific amount of underlying assets, such as securities, indexes, commodities, currencies, etc, at a specific price.
Y
Yield	The annual rate of return of an investment, expressed as a percentage.

Securities Market

Equity Securities

Equity securities, or known as shares, comprise ordinary shares and preference shares. Most equity securities listed on the stock exchange are ordinary shares, which account for most of the daily turnover.
Ordinary shares
Ordinary shareholders are shareholders of the company and they are entitled to vote in matters placed before shareholders. They are also entitled to receive dividends if any are available. However, in the event of liquidation, they are the last pool of people to receive business proceeds following bondholders and preferred shareholders.

Preference shares
Preference shareholders receive a specific dividend which is paid before any of which are paid to ordinary shareholders. Preference shareholders do not have any voting rights but are entitled to receive fixed dividend. In the case of liquidation, they take precedence over ordinary shareholders.

Pilot Programme for Trading US Securities
In order to provide more investment channels, the Pilot Programme for Trading US Securities was launched in May 2000. So far, a total of seven stocks listed on the National Association of Securities Dealers Automatic Quotations (Nasdaq) and the American Stock Exchange (AMEX) have been approved to trade on the Hong Kong stock market.

Stock Code(HKEx)	Stock Quotes (Nasdaq)	Company
4331	DELL	Dell Inc.
4332	AMGN	Amgen, Inc.
4333	CSCO	Cisco Systems, Inc.
4335	INTC	Intel Corporation
4336	AMAT	Applied Materials Inc.
4337	SBUX	Starbucks Corporation
4338	MSFT	Microsoft Corporation

Debt Securities
Debt Securities include bonds and notes, representing loans to an entity, such as a company or a government. The Exchange Fund Notes issued by the Hong Kong Monetary Authority and the notes issued by the Hong Kong Mortgage Corporation are examples of debt securities. Unlike shareholders, holders of bonds and notes are not the owners of an entity but its creditors. Bonds/notes holders would receive interest payment regularly which is either fixed or floating.

Unit Trust/ Mutual Funds
A fund run by an investment company which raises money from shareholders and invests in a batch of assets. In accordance with the Securities and Futures Ordinances, Unit Trust means a trust authorized as a collective investment scheme by the Securities and Futures Commission.
ETF

ETF is a fund tracking an index but can be traded like a stock in a stock exchange. A ETF’s portfolio often bundles the securities in an index. Investors can do whatever they can with an ordinary stock, such as short selling. There are four ETFs currently available to investors in Hong Kong, which are Tracker Fund (2800), China Tracker(2801), Ishares KOR-TR (4362) and Ishares TWN-TR(4363).
Warrants

Warrants can be classified as Equity Warrants and Derivative Warrants.

Equity Warrants
Equity warrants give the holder a right to buy a stock at a specified date in a period of time. The Equity warrant issuer can be the issuer of the underlying stock or a third party. Equity warrants listed on the Hong Kong Stock Exchange are mostly American style, which can be exercised anytime prior to its expiry date while European style equity warrant can only be exercised on its expiry date. Duration of an Equity warrant can be one to five years.

Derivative Warrants
Derivative warrants are issued by third parties other than listed companies. Derivative warrants involve both call and put. Apart from securities, they can be based on a variety of underlying assets such as a basket of stocks, indices, currencies or futures. The first batch of derivative warrants was listed on the HKEx in 1989.
(ELI，Equity Linked Instruments)
Equity Linked Instruments are a structured product issued by banks and financial institutions. They are marketed to those who want to make higher interest rate than that on an ordinary time deposit. But at the same time they have to take the risk of repayment in the form of underlying shares or losing some or all of their initial investment. There are three different types of ELI listed on HKEx, namel-y Bull ELI, Bear ELI and Range ELI. In fact, if an investor buys an ELIs, he is indirectly writing an option on the underlying stock. Apart from identifying which position to take, investors also have to select the appropriate underlying stock, exercise and expiry date, as well as the potential yield.

Derivatives markets

Stock Index Products
Hang Seng Index Futures and Options
The Hang Seng Index is a capitalization-weighted index of selection of companies listed on the HKEx. A total of 43 companies are included in the index which also constitutes four other sub-indexes, namely, Commerce and Industry, Finance, Utilities, and Properties. Total market value in the index accounts for about 70% of the value of all listed companies in Hong Kong. The impact of an individual stock price movement on the Hang Seng Index depends on its market capitalization.

Hang Seng Index Futures
To meet the soaring demand for hedging tools, the Hong Kong Futures Exchange first introduced the Hang Seng Futures contracts in 1986
The contract size is the Hang Seng Index times HK$50. The contract months are the spot plus the following month, then the next two quarterly months. The last trading day is the following day of the last trading day of the contract month.

Hang Seng Index Options
Hang Seng Index Options was introduced in 1993, which quantity is 50 times of the Hang Seng Index. The contract months are the spot plus the next month, then the next three quarterly months. Its expiry date is the following day of the last business day of the contract month.

Mini-Hang Seng Index Futures & Options
The Hong Kong Futures Exchanges introduced the Mini-Hang Seng Index Futures and Options in September 2000, which are mainly based on the Hang Seng Index. The contract multiplier is HK$10 or one–fifth of the HIS futures and option contracts. For example, when the price of the Hang Seng Index futures reaches the 185,000 points level, the contract price of the Mini-Hang Seng Index Futures will be $185,000. Just like the HSI index futures, the Mini HSI futures are settled in cash. They are marketed to those investors who do not want to shoulder too much risk.
H shares Index Futures and Options
H shares index futures and options is based on the Hang Seng China Enterprises Index, which covers all H shares in the Hang Seng Mainland Composite Index. A total of 42 companies are included in the H shares. H shares are dominated in Renminbi but are traded in Hong Kong dollars in the Hong Kong Stock Exchange.
Dow Jones Industrial Average Futures

Dow Jones Industrial Average Futures is based on the Dow Jones Industrial Average Index. The price-weighted index comprises 30 US blue chip stocks listed on New York Stock Exchange and Nasdaq. As of March 28 2002, these 30 stocks had a total market capitalization of about US$3,453 billion (or HK$26,933 billion), and represented over one fifth of the investable US market value. The contract multiplier is HK$10 per index point. For example, if the index is at 10,000 points, the value of one futures contract is HK$ 100,000. The trading hours are 9:00 am to 12:30 pm and 2:30 pm to 4:15 pm Hong Kong time, and the contracts are settled in Hong Kong dollars.
FTSE/Xinhua China 25 Index Futures & Options

FXI China 25 represents the most widely followed 25 mainland stocks available to offshore investors, which are traded on the Stock Exchange Hong Kong limited. The FXI China is complied by FTSE/Xinhua Index Limited (FXI), a joint venture between the Xinhua Financial Network Limited and FTSE Group (FTSE).

Stock Futures
A Stock futures is an agreement to buy or sell shares of a stock in the
future. The buyer has an obligation to buy the stock and the seller has an obligation to sell shares of stock at an established price at a specific date in the future. The contracts are settled in cash and no actual stocks will be transacted upon its expiration. Profits and losses will depend on the relation between the futures price (agreed at present) and the price of liquidation (the actual market price on the expiration date). For the buyer, if the futures price is lower than the liquidation price, he will make a profit while he would incur a loss if the futures price is higher than the liquidation price. For the seller, if the futures price is higher than the liquidation price, he will make a profit, the vice versa.
Stock Options

An option in which the underlying asset is the stock of a company, giving the holder a right to buy or sell its stock, at an established price by a specific date. The call option gives the holder a right to buy a specific stock while a put option gives the holder a right to sell a specific stock. Therefore, the holder has a right to decide whether to exercise the option.
Interest rate and Fixed-Income Products

HIBOR Futures
Hong Kong Interbank Offered Rate is the interest rate on which Hong Kong dollar dominated instruments are traded between Hong Kong banks. The rates are set at 11:00 a.m. based on the HIBOR quota tions offered by 20 banks designated by the Hong Kong Association of Banks. By dropping the three highest( or in case of equality, three of the highest) and three lowest quotations ( or in case of quality, three of the lowest), the mean of the remaining 14 offered rates shall become the HKAB interest settlement rate.

Three-Year Exchange Fund Note Futures
Exchange Fund Notes are issued by the Hong Kong Government for the account of the Exchange Fund under the Exchange Fund Ordinance (Cap. 66). They serve as monetary policy instruments of the Hong Kong Monetary Authority, and they facilitate the establishment of a benchmark yield curve for the Hong Kong dollar debt market.
EFN Futures are based on three-year notional Exchange Fund Notes carrying a 6% coupon. The size of each EFN Futures contract is $1,000,000. The price of EFN Futures is quoted as a percentage of the contract size, quoted to two decimal places. The minimum fluctuation, 0.01 percent of the contract size, is equivalent to $100.
There is an inverse relationship between the Exchange Fund Note's yield and the EFN Futures price. A drop in the Exchange Fund Note's yield is associated with an increase in the EFN Futures price, and vice versa.

Technical Analysis
No matter you invest in stocks, futures, currencies or even commodity futures, a technical analysis is indispensable. Investors often wonder: “Which price level should I buy this stock? At the current level or a lower one?" You will get a satisfactory answer once you know how to do technical analysis.

Technical Analysis mainly focuses on market performances. In order to predict the price movement in the near future, very often a line graph is used. Investors can grasp a stock price direction after knowing how to do technical analysis