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w/c 17 June 2024: The US data highlight this week is Retail Sales on Tuesday, with global Flash PMI data on Wednesday. Plus on the central bank side we get the RBA, PBoC, SNB and BoE all in play

Financial abbreviations explained

Beginner

Abbreviations and acronyms are widespread in the world of finance. If you don’t know your FOMC from your ROCE, or your NFP from your GBP, we are on hand to give you a little help. There are lots to get through but by no means is our list exhaustive. However, hopefully, the ones that give you the most confusion are here and we can help clear a few of them up for you.

We have divided them into sections. We cover broad financial markets, regulators, central banks, corporates and accounting, the economy, broker types, and trading & analysis.

Financial Markets

We will start by looking at some of the acronyms of the major markets. These are some of the acronyms you might see when reading the headlines of the financial news. We are looking at forex, bonds, equities and commodities.

Forex trading

Forex traders will be used to the codes that are used to denote forex pairs. They are a three-letter code, with the first two letters usually reflecting the country and the third letter denoting the currency. Here are some of the most widely used ones:

  • USD (United States dollar)
  • EUR (Euro)
  • GBP (Great British pound)
  • JPY (Japanese yen)
  • AUD (Australian dollar)
  • NZD (New Zealand dollar)
  • CAD (Canadian dollar)
  • CHF (Swiss franc)

Here are a few other ones you may have come across. These are not major currencies (although some would debate Norway and Sweden):

  • BRL (Brazilian real)
  • CNH (Chinese yuan)
  • HUF (Hungarian forint)
  • INR (Indian rupee
  • MXN (Mexican peso)
  • NOK (Norwegian krone)
  • RUB (Russian rouble)
  • SEK (Swedish krona)
  • ZAR (South African rand)

Government bonds

The government bonds of major economies will often come with three-letter acronyms. Here are the main ones that are abbreviated UK Gilts and German Bunds do not get acronyms):

  • UST (United States Treasuries)
  • BTP (Italian Treasury Bonds)
  • JGB (Japanese Government Bonds)
  • OAT (Obligations Assimilables du Tresor) – These are French Government Bonds (the acronym is in French)

Stock Markets

These are the major stock markets and stock exchanges:

  • DJIA (Dow Jones Industrial Average) – the original market on Wall Street. It comprises 30 stocks.
  • S&P (Standard & Poors) – This is a credit ratings agency that also lends its name to what is now Wall Street’s most important stock market, the S&P 500 Index.
  • NASDAQ (National Association of Securities Dealers Automated Quotation) – This is the primary US stock market that focuses on technology stocks.
  • NYSE (New York Stock Exchange) – This is where US stocks are primarily traded.
  • CAC (Cotation Assistee en Continu) – This is the main stock market for France, comprising 40 stocks.
  • DAX (Deutscher Aktien Index) – This is the German stock index, comprising of now 40 stocks.
  • FTSE (Financial Times Stock Exchange) – This is the primary stock exchange of the UK. The main index is the FTSE 100 Index

Exchanges and Organisations

Here are a few other exchanges and bodies that commodities traders need might have heard of:

  • LME (London Metal Exchange) – this is the world’s primary exchange for industrial and precious metals
  • CBOT (Chicago Board of Trade) – This is one of the world’s oldest futures and options exchanges. Trading of interest rates, agricultural and equity index products.
  • CME (Chicago Mercantile Exchange) – An agricultural and commodities exchange.
  • WTO (World Trade Organisation) – A intergovernmental body that deals with the global rules surrounding trade between nations.

Regulators

Now let’s look at a few finance market regulators. These are the national bodies that oversee and regulate the financial business of any companies that operate under their jurisdiction. Here are a few of the more widely known ones you may need to know (in alphabetical order):

  • ASIC (Australian Securities and Investments Commission) – The Australian regulator
  • BVI FSC (British Virgin Islands Financial Services Commission) – A regulator in the Caribbean
  • CFTC (Commodity Futures Trading Commission) – The regulator for brokers in the United States of America
  • CYSEC (Cyprus Securities and Exchange Commission) – A European regulator
  • FCA (Financial Conduct Authority) – The UK regulator
  • IIROC (Investment Industry Regulation Organization of Canada) – The regulator in Canada
  • IFFA (Institute Financial Futures Association) – The regulator in Japan
  • MAS (Monetary Authority of Singapore) – A big regulator for the Asian Pacific region
  • MFSA (Malta Financial Services Authority) – Another European regulator
  • SCB (Securities Commission of the Bahamas) – A regulator in the Caribbean

Central Banks

The world’s central banks all tend to be known by acronyms. Here is a list of the major central banks:

  • FOMC (Federal Open Markets Committee) The central bank is the Federal Reserve (or the Fed for short) but the FOMC is the decision-making committee on monetary policy
  • ECB (European Central Bank) Monetary policy decisions in the Eurozone are made by the GC (Governing Council)
  • BoE (Bank of England) – Monetary policy decisions in the UK are made by the MPC (Monetary Policy Committee)
  • BoJ (Bank of Japan)
  • BoC (Bank of Canada)
  • RBA (Reserve Bank of Australia)
  • RBNZ (Reserve Bank of New Zealand)
  • SNB (Swiss National Bank)

Corporates / Accounting / Fundamentals

The people that run the company often come with fancy acronyms:

  • CEO (Chief Executive Officer) – The is the head of the business. Their power is supposedly balanced on the board by the Chairman.
  • CFO (Chief Financial Officer) – This is the most important person in charge of the financial and accounting side of the business. They tend to be seen as second in command behind the CEO. The FD (Finance Director) tends to work under the CFO.
  • COO (Chief Operating Officer) – This is the person in charge of the day-to-day running of the business. They are often seen as third in command.

Corporate accounts are littered with acronyms throughout the Balance Sheet, P&L (Profit & Loss) statement and Cashflow Statement, along with the valuation metrics that analysts use to assess the performance of a company.

  • EBIT (Earnings Before Interest and Tax) – this is a P&L entry that is revenue minus the cost of sales and operational costs. It is one of the most basic forms of profit for a company before anything else is stripped out.
  • EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) – This is where other items begin to be stripped out of the EBIT number. However, as Depreciation and Amortisation are effectively arbitrary, EBITA and EBITDA are seen as imperfect valuation measures.
  • EPS (Earnings Per Share) – This is a valuation measure of the performance of the company. It comes at the bottom of the P&L and uses Net Profit (when everything has been stripped out). The calculation is Net Earnings divided by the Total number of shares.
  • P/E ratio (Price/Earnings ratio) – This is the most standard valuation for a company. It is the Share Price divided by EPS. Decent P/E numbers vary depending on the sector (and the country). Effectively it is a measure of how many years of earnings would it take to pay for the shares. Broadly speaking, the lower the P/E the better the value of the shares.
  • PEG (Price/Earnings Growth) – This is a popular analyst valuation measure that goes one step deeper than the P/E ratio. It combines P/E ratio with EPS growth (how much the EPS is growing on an annual basis). It is calculated as the P/E ratio divided by EPS growth. A level of 1.0 or below suggests that a company is looking cheap, with above 1.0 being more expensive.
  • DPS (Dividend Per Share) – This is the pay-out that each shareholder receives in dividend. It is calculated as the total paid to shareholders divided by the total number of shares. It is used to calculate the dividend yield of the shares (DPS divided by the share price, as a percentage).

Now for some Balance Sheet terms:

  • CAPEX (Capital Expenditure) – This is the investment that the company is making in the hardware of the business.
  • WC (Working Capital) – This is used as a short-term gauge of how healthy a company is. It is taken as Current Assets minus Current Liabilities. Anything above 1.0 is considered healthy, but if the WC is below 1.0 then the company’s viability is at risk.

Now, there are lots of ways that analysts value the performance of a company using balance sheet items too.

  • ROCE (Return on Capital Employed) – This is the analysis of how much profit is generated by the company’s assets. “Return” is taken as how much profit is generated, for which analysts use EBIT. The measure returns a decimal number, the bigger the number (ideally closer to 1.0) the more efficient the company is at generating money The calculation is EBIT divided by Capital Employed (Total Assets minus Current Liabilities)
  • ROE (Return on Equity) – This is a gauge of profitability. It is calculated as the Net Income of a company divided by Shareholders’ Funds. The higher the value, the better the company is at using shareholders’ funds to generate profit.
  • ROI (Return on Investment) – This is essentially how much has been invested in the company divided by how much money has been made (after costs).
  • NAV (Net Asset Value) – This is a way of valuing asset-rich companies such as investment funds or property companies. It is calculated as Net Assets (Total Assets – Total Liabilities) divided by Total Shares. It generates a per-share value and is seen as a way of valuing a company (seeing whether it is overvalued, undervalued or at a fair value).

Economic data

Now for a few acronyms that you may have seen on economic calendars. First of all, let’s start with the data comparisons:

  • MoM (Month on Month) – Data compared to last month
  • QoQ (Quarter on Quarter) – Data compared to last quarter
  • YoY (Year on Year) – Data compared to where it was 12 months ago
  • YTD (Year to Date) – From 1st January of the current year up until today

And now for the economic data:

  • CPI (Consumer Price Index) – The widely accepted measure of inflation in an economy
  • HICP (Harmonised Index of Consumer Prices) – A method of comparing like-for-like inflation in the Eurozone.
  • PCE (Personal Consumption Expenditure) – A measure of inflation in the US. This is the preferred measure of the Federal Reserve.
  • PPI (Producer Price Index) – A measure of price changes for industry and businesses.
  • GDP (Gross Domestic Product) – An economic term that measures the level of output for a country.
  • NFP (Nonfarm Payrolls) – The US Government’s broad measure of jobs growth. It comes as part of the Employment Situation report released by the Bureau of Labor Statistics.
  • PMI (Purchasing Managers Index) – A survey of purchasing managers for companies in a specific industry sector of a country.
  • ISM (Institute of Supply Management) – The ISM conducts the official PMI surveys for the US.

Broker types

When choosing a broker to trade with, there are several different models of how brokers run their businesses. These impact the traders. They all come with their acronyms:

  • MM (Market Maker) – This is the most controversial broker model. The trader puts trades on and the broker takes the other side of the trade. There are costs and benefits to this. It allows reduced costs and tighter spreads, but effectively the broker is trading against you.
  • NDD (No Dealing Desk) – This is the broad term where brokers do not take on the risk of your trades. Under this umbrella, brokers can be STP or ECN (see below)
  • STP (Straight Through Processing) – This is where the broker puts your traders directly into the market of several liquidity providers.
  • ECN (Electronic Communication Network) – This is a step further than STP in the NDD model. The ECN model pushes the client’s trades out anonymously into the vast ocean of global forex trades.
  • DMA (Direct Market Access) – Another form of NDD trading account. This is usually reserved for professional traders.

Trading and Charts

Now for a few terms that traders should be aware of. These are acronyms that are used during trading or on platforms.

Trading

  • GTC (Good To Close) – The amount of time a trading order sits in the market. It does not expire. It is a live order until the trader closes it.
  • HOD (High of the Day) – The highest price of the session
  • LOD (Low of the Day) – The lowest price of the session
  • OHLC (Open/High/Low/Close) – Key price points of the day.
  • O/N (Overnight) – The period between the US and Asian sessions.

Technical Analysis indicators

Now for a few terms for the technical analysts out there:

  • M/A (Moving Average) – a line showing the average price over a specified period
  • MACD (Moving Average Convergence/Divergence) – a popular indicator that combines moving averages and momentum
  • RSI (Relative Strength Index) – a popular momentum indicator
  • Parabolic SAR (Parabolic Stop and Reverse) – a technical study that can indicate a trailing stop.

Other finance terms

We will end with a few terms in finance that you may have come across:

  • APR (Annual Percentage Rate) – the level of interest that is attached to a loan.
  • CFD (Contract For Difference) – CFDs are leveraged trading products that are offered by brokers
  • GFC (Great Financial Crisis) – The period between 2008/2009 when financial markets crashed around the world.
  • IPO (Initial Public Offering) – This is how companies raise money on stock markets when they “go public”. They offer their shares to investment banks and brokers where individual investors can take ownership of a company as it floats on a stock exchange.
  • MBS (Mortgage-Backed Securities) – An investment product, a form of bond that is a bundle of debt attached to housing and real estate.
  • ZIRP (Zero Interest Rate Policy) – The era post the GFC when central banks had slashed interest rates to zero and engaged in seemingly endless ultra-loose monetary policy
  • NIRP (Negative Interest Rate Policy) – Some central banks went even further than zero, cutting interest rates into negative territory. Effectively it cost you to park money at the bank.
  • VAT (Value Added Tax) – A broad tax on goods and services. It can also be known in some countries as GST (Goods and Services Tax)

Takeaways

Hopefully this whistlestop tour of financial abbreviations has eased some confusion and gives better clarity to the sometimes confusing world of financial markets. If you have any abbreviations you still don’t understand, please do ask below …



Michael Griffiths has recently graduated with an Upper Second-Class Honours degree from Churchill College, University of Cambridge, where he read Economics and Specialised in Mathematical Economics an... Continued

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