An alternative name for ordinary shares. Companies are incorporated with an authorised share capital - for instance 1,000 ordinary Ј1 shares. They do not have to issue all the authorised shares, but can issue as many as they like up to the authorised number.

Once issued the shares can be traded either privately or on an exchange if the company has listed them. The price at which they trade will have nothing to do with the par value, but will be determined by market forces. Broadly speaking, if there are more willing buyers than sellers, the price will rise; if there are more sellers than buyers, it will fall.

Shares usually come with a right to vote at the company's Annual General Meeting, and an entitlement to a share of dividends declared. They are, however, unsecured. This means that shareholders are last in the queue if a company goes bust and has to sell off its assets. If the amount realised is enough to pay off all creditors, the shareholders may salvage something. If it isn't, the shares will be worthless.

British Government Securities are fixed income or index-linked bonds issued by the UK Government.
When you buy a BGS, you are lending the government money in return for regular interest payments and the promise that the nominal value of the security will be repaid (redeemed) on a specified later date. The rate of interest will be in the name of the security (e.g. 8% Treasury 2021 is a security issued by the Treasury which pays 8% interest p.a. and is repayable in 2021).

You don't have to hold a security until its redemption however, as they are tradeable instruments just like shares. Since they are tradeable, their prices continually move in line with supply and demand, and the main influences on prices are the market's view of future interest rates and inflation.

Prices tend to fall when interest rates rise and when inflation is on the increase. The prospect of low interest rates and low inflation makes BGS's more attractive. Index-linked BGS's pay a lower rate of interest than fixed-interest BGS's, but both the rate of interest and the amount paid on redemption rise in line with inflation.

If the securities are redeemable, the redemption amount will be paid to whoever is the owner at the redemption date. Redeemable securities are classified as longs (redeemable after fifteen years or more), mediums (redeemable between five and fifteen years) and shorts (redeemable within five years). The amount redeemed will not be the market price of the bonds at the time of redemption, but its nominal value (usually Ј100).

Income from BGS's is liable for tax but capital gains are tax free.

ETFs are a new kind of collective investment fund competing with investment trusts and unit trusts for investors' money. In some ways they are a conventional tracker fund, pooling the cash of a large number of investors and investing it in a basket of shares in companies that make up an index (e.g. members of the FTSE A All-Share).

Like unit trusts, ETFs are open ended, which means that new units can be issued in response to demand. The advantage of this is that they trade at a price which is close to the net asset value of the fund (i.e. the value of its investments) - something that cannot be said of investment trusts which are closed funds.

But unlike unit trusts, ETFs do not usually have initial charges and their annual management charges are much lower (averaging 0.35%). You will have to pay broking commission, but some ETFs are exempt from Stamp Duty.

Another feature of ETFs is that their prices are updated continuously during the trading day to reflect the indexes they track. This is an improvement over unit trusts where prices are only recalculated every 24 hours. So if you buy shares in an ETF at 2 o'clock on Monday the price you pay will be directly related to the NAV at that time.

ETFs pay a dividend to their shareholders, which is the sum of all the dividends received from the ETF's investments minus an annual management fee. Typical annual fees are under 0.5% of the fund's value.

The UK's first ETF was launched by Barclays Global Investors in 2000 and took 80,000 trades in its first week. It can be held in both PEPs and ISAs and does not attract Stamp Duty.

An option takes the form of a contract that gives its holder the right but not the obligation to buy or sell a fixed number of shares (or other instrument) at a fixed price on or before a given date. A CALL option is an option to BUY shares. Call options generally rise in price if the underlying shares rise in price (and vice versa).
A PUT option is an option to SELL shares. Put options generally rise in price if the underlying shares fall in price (and vice versa).

Note that the holder has a right, not an obligation. This means that he can decide to exercise the option to buy or sell the shares if he wants, but he doesn't have to if he decides that it is not in his interests to do so. The main criterion for that decision is whether the exercise price of the option is higher or lower than the current price of the underlying share.

Options can exist over a number of different classes of asset including property, chattels, and most types of financial assets. For most people, they relate to ordinary shares, and the options are called equity options. In London they are traded on LIFFE.

Warrants are securities issued by a company (often an investment trust) which give their owners the right to purchase shares in the company at a specific price at a future date. The warrants are tradable in their own right, and their value will go up and down as the price of the shares to which they relate goes up and down. e.g.

Goodco issues new shares at 50p each. At the same time it gives shareholders warrants entitling them to buy shares at 100p at any time until 1st January 2005.
Warrants have no right to dividends and no voting rights, so their value is tied entirely to the relationship between their exercise price and the share price of the company. If the share price is below the exercise price, the warrants are said to be 'out of the money' and they are worthless. If the share price rises above the exercise price, they are 'in the money' and worth something. e.g.

Goodco's share price rises to 150p. The intrinsic value of the warrants is now 50p (150p less 100p).

Note that one of the features of warrants is 'gearing'. This means that a small rise in the price of the share price results in a large rise in the value of the warrants, and a fall in the share price has an equally dramatic downward effect on the value of the warrant. e.g. 

Goodco's share price rises 33 per cent from 150p to 200p. The intrinsic value of the warrant rises from 50p to 100p (a 100 per cent rise).

Note that the owner of a warrant does not have to buy the shares. He has a right, not an obligation. Note too that the value of a warrant can quite easily drop to zero (if the exercise price is higher than the share price) and that it will definitely be zero once the time for exercise has passed.

Legal agreement where one person or firm holds shares on behalf of another (who remains the beneficial owner), without charging for the service.