individual that executes futures and options orders on behalf of financial and commercial institutions and/or the general public.

Bearer bond
Bond with no central register of bondholders. Entitlement to payments of interest and principal depends on physical possession of the bond. Bondholders submit coupons to the issuer (cut out from the bond) to receive each interest payment.

Beauty parade
Competitive review of investment managers, custodians, consultants or other service providers, usually involving written submissions and presentations.

Bell curve
See normal distribution.

Bellwether
Stock or bond that is widely believed to be an indicator of the condition of the overall market.

Below par
Having a current price below face or par value.

Benchmark
Measure against which a portfolio’s performance, risk and construction is assessed. The benchmark may take the form of a market index for portfolios focusing on a particular market — for example, MSCI World Equity Index — or be a peer group average or median.

Benchmark portfolio
Theoretical portfolio of assets against which the performance of an actual portfolio is monitored.

Beneficial owner
Person who enjoys the benefits deriving from a security or property. May be different from the legal owner in whose name the title is registered.

Best execution
Execution of a securities transaction at the best price available in the market at the time of the transaction.

Beta
Statistical measure of risk or volatility. Indicates the sensitivity of a security or portfolio to movements in the market index. Securities/portfolios with a beta greater than one are expected to be more volatile than the market as a whole, outperforming in rising markets and underperforming in falling ones.

Bid
An expression indicating a desire to buy a commodity at a given price; opposite of offer.

Bid/offer (bid/ask) spread
Difference between the buying price (offer or ask price) and selling price (bid price) of a pooled fund unit or a security.

Bid price
Price at which a security or a unit in a pooled fund can be sold. (See also ask price, offer price, mid price.)

Bill, treasury
See treasury bill.

Blue chip company
Large, well-known company with a long record of profit growth, strong branding and consistent record of paying dividends.

Bond
Certificate of debt issued by a government or company, promising regular payments on a specified date or range of dates, usually with final capital payment at redemption. Most bonds are issued with a nominal face value and a coupon, stated as a percentage of their nominal value, although variations on this structure exist. A bond’s price rises as its yield falls, and vice versa. (See also zero coupon bond, index-linked gilt, floating rate bond.)

Bond rating
Credit rating on a bond.

Bond yield
Income of a bond as a percentage of the capital invested. As bond yields rise, prices fall, and vice versa.

Bonus issue
Issuance of free shares by a company to its existing shareholders. No money changes hands and the share price falls pro rata. This is usually used as an exercise to make the shares more marketable (i.e. cheaper per share and therefore more attractive to small investors). Also known as a capitalisation or scrip issue.

Book value
Value at which a security is recorded on a balance sheet, usually the cost of buying it. If securities have been acquired at different times and different periods, the book value will reflect the average buying cost.

Brokerage Fee
See Commission Fee.

Brokerage House
See Futures Commission Merchant.

Boom
Period of rapid economic growth.

Bootstrapping
Method of interpolating government bonds of differing maturities to gain exposure evenly across the whole yield curve.

Bottom quartile
Quartile ranking that is in the bottom 25% of returns. (See also top quartile.)

Bottom-up
Approach to active investment management that gives priority to the identification and selection of companies (with less emphasis accorded to sector and geographical region) to build up an investment portfolio. This is the opposite of a top-down approach. (See also country allocation, stock selection, top-down.)

Bourse
Another name for a stock exchange; usually applied in a Continental European context.

Boutique investment manager
Firm, generally relatively small in scale of operations, which has as its sole purpose the management of investments for third parties for a fee and which does not participate in other activities such as banking or life assurance.

Breakeven inflation
The rate of inflation that will equalise the returns between fixed interest and inflation-linked securities of the same maturity.
For example, if the yield on a 10-year fixed interest gilt is 5% and the real yield on a 10-year index-linked gilt is 2%, then the breakeven inflation rate is 3%. Also known as implied inflation and can be derived from swaps as well as bonds.

Broker/dealer
Individual or firm that acts as an intermediary between buyers and sellers, usually for payment of a commission. It may also buy securities to sell for a profit while fulfilling its role as dealer.

Bull
Individual who believes that a security, sector or the overall market is going to rise in price. Opposite of bear.

Bull market
Period of sustained stock market growth. Opposite of bear market.

Bull Spread
In most commodities and financial instruments, the term refers to buying the nearby month, and selling the deferred month, to profit from the change in the price relationship.

Butterfly Spread
The placing of two interdelivery spreads in opposite directions with the center delivery month common to both spreads.

Buying Hedge
See Purchasing Hedge.

Bullet portfolio
Bond portfolio with maturities concentrated over a small cross-section of the yield curve.

Business cycle
See economic cycle.

Buy and hold analysis
Technique of investment performance measurement which compares a portfolio and its related characteristics (return, income, yield, volatility) at the end of a period with the portfolio as it would have been had no transactions occurred during the period. This separates the effects of market movements and manager decisions.
buy and hold strategy Investment strategy in which stocks are bought and then held for a long period of time regardless of short-term market movements.

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