Put your money to work

A banking day is a calendar day that is not a Saturday, Sunday or national or public holiday.

A market situation where there is general pessimism and stocks are in a downtrend. According to a common adage, it is a bear market when the value of a stock index has fallen by at least 20%.

A bond is a security bearing the borrower’s obligation to repay the loan to the lender within the agreed term and to pay interest.

Collateral is an agreement on assets to secure a loan contract.

Compound interest is interest on a loan or deposit calculated based on both the initial principal amount and the accrued interest from previous periods. Compound interest accrues when interest payments are invested rather than paid out.

A contract fee is a service fee that the borrower pays each time for the preparation, conclusion and/or modification of the contract.

A digital or virtual currency characterised by decentralisation and security provided through cryptography.

The portion of a company’s profits paid to holders of common and preferred stock.

A down payment is the borrower’s co-payment for the purchase of the product or service financed by the loan contract.

A service fee charged for early termination of a contract or bond.

EBITDA (earnings before interest, taxes, depreciation, and amortization)

Environmental, social and corporate governance related criteria against which the sustainability of a company is assessed. The fulfilment of these criteria are often taken by investors as a basis for making investments in the company.

The Euro Interbank Offered Rate, which changes daily. Effectively, Euribor is the recommended interest rate at which commercial banks are willing to lend money to each other. Predicting how Euribor will change (go up or down) is difficult. Euribor is used, for example, as a component of loan or lease interest rates and is determined for the period agreed in the loan contract.

A security that follows an index, commodity, or asset class in the same way as an index fund but is exchange-traded. Exchange-traded funds can be bought with leverage and short sold. One of the best-known ETFs that follows the movement of the S&P 500 index trades under the symbol SXR8.

An exchange-traded fund has five advantages over a traditional open-ended investment fund:

1. units can be purchased directly on the market;
2. the price moves throughout the day, while the price of a traditional fund is fixed once a day;
3. can be bought and sold at any time;
4. can be short sold and options may be used as underlying assets;
5. purchase costs are lower.

Abbreviation: ETF

A fine for delay is a penalty (late interest) calculated from the principal debt and other fees agreed in the contract that have fallen overdue (except for interest and fines for delay).

A company whose business model consists of providing technology-based financial or banking services and which uses fintech methods in its work. This type of company wants to replace traditional financial methods and improve and automate the provision of financial services. Also: fintech company.

A fixed interest rate is an interest rate that does not change during the term of the contract.

A floating interest rate consists of a base rate and a margin and may change during the term of the contract.

Less than one share (fraction) of a stock.

A risk management strategy using counter-transactions to avoid the effects of adverse price movements. For example, it is possible to purchase a put option to mitigate the effect of a decrease in the price of a stock.

Initial sale of shares to the public by the company. An initial public offering can be undertaken by both a small company that wants to receive additional capital to expand and a large company that wants its shares to be traded on the stock exchange.

Abbreviation: IPO.

An investment fund that invests in the constituents of indices with the aim of achieving the fund’s rate of return in a similar way to the selected index. Since portfolio-related decisions are made automatically and transactions take place infrequently, the expenses of an index fund are lower than those of an actively managed fund.

The decrease in the value of money over time. Inflation is pushing up the prices of goods and services. Hyperinflation is a situation where inflation has spiralled out of control, exceeding 50% per month.

Insolvency is a situation where the debtor cannot repay the loan amount or pay interest. The borrower becomes insolvent when they are unable or unwilling to meet their debt obligations.

An instalment is a periodic (usually monthly) payment the borrower pays to the lender for using the credit amount. An instalment consists of repayment of the credit amount for the respective period, interest, monthly fee and other agreed fees.

Interest is a charge that the borrower pays for using the loan amount. An interest rate can be fixed or floating (also known as a variable interest rate).

Interest on the loan amount is calculated from the total loan amount. The interest payment is the same throughout the loan period.

Interest on the loan balance is calculated from the remaining balance of the loan amount. Therefore, the monthly interest payments decrease as the loan balance decreases.

Key investor information is a short document prepared for the public offering of a fund, containing key information about the fund.

When investing, borrowed money is used to increase the possible rate of return. Example 1: In the case of a leverage of 4, the share of own funds is 25%, and the remaining amount required for the investment is borrowed. If the broker offers leverage of 1:4 and the investor has EUR 1000 to invest, then he can buy securities worth EUR 4000 using the maximum leverage. Using leverage, the investor risks more.

Loan insurance ensures that the policyholder will not have difficulties repaying the loan in the case of unexpected events.

A management company is a company whose main activity is the management of one or more funds. A management company of pension funds is licenced to manage a mandatory or voluntary pension fund.

A management fee is a fee paid by the borrower for operations related to the management of the loan contract.

A member of the stock exchange who has agreed to constantly display buy and sell quotes for some stocks, thereby improving the liquidity of the stock.

The part of the financial markets in which short-term (up to one year) and liquid debt instruments are traded. The main instruments of the money market are deposits, bank guarantees, short-term government bonds, repos and municipal bonds. Market participants use the term ‘money market’ to refer to the short-term debt market.

A mortgage is a pledge on real estate. For example, when issuing a housing loan, a mortgage in favour of the bank is formalised at a notary’s office. This means that a mortgage provides an opportunity to obtain a loan on the one hand and is a guarantee for the lender on the other. A mortgage gives the lender the right to cover the claim secured by the mortgage on account of the pledged real estate.

An investment entity that collects money from shareholders and invests it in various securities (e.g., shares and bonds). An open-ended fund always issues new units in the case of a new buyer and, at the request of the unit-holder, repurchases units within a month. A closed fund does not redeem its units upon request.

Net asset value is the fair value of a fund’s assets less the fund’s liabilities.

Nominal value is the value of a security determined at the time of issuance.

An order is a client’s request to a broker to buy (purchase order) or sell (sales order) a specified amount of securities either at the price indicated on the order or at the market price.

A payment schedule is a schedule for the payment of instalments under a contract.

A payment schedule with fixed or even principal repayments is a type of loan repayment schedule. In this case, equal amounts of loan principal are repaid every month, and interest is added. The interest part decreases with each payment, because it is calculated from the balance of the loan principal. As interest payments decrease and principal payments are even, the overall monthly payment decreases with each month for this type of schedule.

A stock below $ 5.

Dangers associated with penny stocks:

1. There is usually not enough information about them, since analysts do not monitor such stocks.
2. They are easily manipulated and inflated.
3. A stock is a part of a company, so you’re probably buying a worthless company.

A pension is a regular payment in the case of old age, incapacity for work or loss of provider.

The principal amount is the amount of money that is initially borrowed, paid in or financed.

An official document for the offering of shares, bonds, and mutual funds that helps investors make more informed investment decisions, as it describes the content of the offer in detail.

By a refinancing loan, the borrower can exchange an existing loan for a loan with more suitable conditions or combine several loans into one. Refinancing also helps prevent indebtedness and to repay an existing loan on time.

ROE = net income/shareholders’ equity

Shows the return on investment and allows you to decide on the efficiency of the enterprise. The higher the return on equity, the more effective the investments in the company have been.

Abbreviation: ROE.

A right or pre-emptive right allows existing shareholders, for example, to buy shares during a new issue in priority order. This privilege is usually valid for two to four weeks, and the price of the offer may be lower for these buyers than for other buyers. Rights can also be tradable. Stocks, for example, are tradable rights.

The second pillar is a tax-advantaged savings pension, in which the state adds an additional 4% from social tax receipts to the 2% contributed by the pension investor. For the investor, it makes a total of 6%.

A security is an agreement between an investor and an issuer (a legal entity that develops, registers and sells securities to finance its activities). The most common securities are stocks/shares, bonds and fund units.

Increasing the number of shares, which simultaneously reduces the nominal share value. The reason for a split is usually the high price of the stock, which is done to make the stock price more suitable for small investors. A split requires permission from the company’s supervisory board and shareholders.

Example. A share costing EUR 100 will be subject to 2:1 split. Following the split, the price of one share is EUR 50. Former stockholders have twice as many shares after the split, but each of them costs half of the former: EUR 50 There may also be a reverse stock split, in which case the share price increases. Synonyms: share split, stock split, split.

An index measuring market value that follows the price movement of ordinary shares of the 500 highest-market companies in the U.S.

Dividend, paid in shares.

A type of security that entitles the holder to a share in the company’s assets and profits.

The management fee component paid by the fund (hence also the unit-holder) to the management company if the management company has been able to earn a certain income for unit-holders when investing the fund’s assets.

A surety is a guarantee given by a guarantor. With a surety, the guarantor agrees to be responsible for the obligation assumed by the principal. If the borrower becomes indebted to the bank, the guarantor has to pay the debt. The amount of the surety is agreed in the contract of suretyship.

The third pillar is an additional savings pension where the investor is refunded 22% income tax on contributions made during the previous calendar year, which do not exceed 15% of gross income or 6,000 euros.

The total cost of credit is the total amount of all payments the borrower makes to repay the credit and cover the costs of using the credit. The total cost of credit consists of the credit amount, interest, contract fee, monthly fee and other fees.

Venture capital is capital invested in transactions involving significant risk, as well as in start-up or early-stage companies whose chances of success are uncertain.

Fluctuations in the price of a security over the short term. The more the stock price fluctuates in the short term, the higher the volatility. Typically, a stock’s volatility is measured using a beta coefficient. Portfolio volatility can be lowered by diversification.