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OVER THE COUNTER (OTC)

There are basically two ways to do a deal to buy or sell a security – on exchange or over the counter. Many shares for example are listed at large exchanges such as the London Stock Exchange so when a broker wants to place a trade they can do easily quickly and cheaply “on exchange”. …

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ORDER BOOK

Deal instructions to buy and sell shares, or other securities, that have not yet been executed are often held in an order book.. This is just a list of buy and sell orders that gives priority to the best prices – the order with the highest buy price and the order with the lowest sell …

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OPPORTUNITY COST

Most financial decisions carry an opportunity cost – the value of the alternative course, or courses, of action available to you at the time. For example if you decide to leave your money in a bank account you risk missing out on gains elsewhere available via say property or the stock market. Even within stock …

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OPTION

This is a derivative that gives the buyer a degree of protection against falling prices. For example you might buy a “put” option on the FTSE 100 with a strike price of 6,000 points. You will pay an upfront premium for this which is non-refundable. If the FTSE starts falling your option will pay out …

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OPERATIONAL GEARING

This is the relationship between a firm’s fixed and variable costs. Where fixed costs are high the firm is said to be highly geared, making it more sensitive to changes in sales than a firm with low gearing. For example if a firm makes sales of £100m and incurs variable costs of £10m and has …

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OPEN ENDED FUND

Examples of this type of fund include unit trusts and open ended investment companies. The fund is structured so that as investors decide they want to buy the fund it expands to meet their demand by taking their money and investing in more assets. Equally when investors want to sell the fund is able to …

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OFFER PRICE

There are two prices at which most securities can be traded – a bid and an offer. The offer price is the price you pay to buy a security. So for example if the spread on a share is 210-215, you will pay 215p to buy it. READ MORE