Financial Terms Dictionary - Letter L

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Last twelve months

Last twelve months, often abbreviated as LTM, refers to the time period of the previous 12 months in financial reporting and analysis, used for assessing a company's performance without waiting for year-end figures.

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Late trading

Late trading refers to the illegal practice of executing trades in mutual fund shares after the time when the fund has calculated its daily net asset value, typically 4PM in the US, to take advantage of late-breaking news.

Layering

Layering is a technique used by security traders during high-frequency trading, in which they attempt to manipulate the price of a stock ahead of them executing a certain transaction.

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Lead Underwriter

The lead underwriter in a securities issuance is the primary bank or financial institution responsible for arranging the offering, managing the consortium of underwriters, and liaising with the issuing company.

Ledger wallet

A ledger wallet is a type of hardware wallet for cryptocurrencies that stores the user's private keys in a secure hardware device, providing robust protection against computer vulnerabilities and virtual theft.

Legal risk

Legal risk involves the risk of financial or reputational loss that can result from regulatory actions, legal proceedings, or the inability to enforce contracts or resolve contractual ambiguities.

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Lehman Brothers

Who are the Lehman Brothers? Lehman Brothers was a global financial services firm that filed for bankruptcy in 2008, marking the largest bankruptcy filing in US history and a catalyst for the global financial crisis.

Leverage

Leverage in finance refers to the use of borrowed money to increase the potential return of an investment. It can amplify both gains and losses.

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Leverage cycle

The leverage cycle refers to periodic fluctuations in borrowing by investors that can amplify the booms and busts in asset prices and economic activity, significantly affecting financial markets and the economy.

Leverage Ratio

The leverage ratio meaning is defined as a financial measurement that looks at a company's total debt relative to its financial assets, indicating how much of the company is financed by debt as opposed to owned capital.

Leveraged Buyout

A leveraged buyout (LBO) is the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans.

Leveraged recapitalization

Leveraged recapitalisation is a corporate finance technique in which a company takes on significant additional debt to either pay a large dividend or repurchase shares, thereby restructuring its capital structure.

Liability

In financial accounting, a liability is something a person or company owes, typically a sum of money. Liabilities are settled over time through the transfer of economic benefits including money, goods, or services.

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Liability-Driven Investment

Liability-driven investment (LDI) is an investment strategy primarily used by pension funds where the main goal is to have sufficient assets to cover all current and future liabilities.

Libor

LIBOR (London Interbank Offered Rate) was a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans. It is being phased out and replaced by alternative reference rates like SONIA and SOFR.

Like For Like

Like-for-like (LFL) is a term used to describe a comparison of data that accounts for the impact of expansion, disposals or other structural changes within a company, so that a true, comparable year-over-year assessment can be made.

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Limited partner (LP)

A limited partner is an investor in a partnership whose liability is limited to the amount of their investment. Limited partners typically do not have management responsibilities and are not involved in the day-to-day operations.

Limited Risk

Limited risk refers to financial exposure where the maximum potential loss is known and limited to a specific amount, often the initial amount invested.

Limits to arbitrage

Limits to arbitrage are factors that prevent traders from acting on and thereby eliminating pricing inefficiencies in markets. These can include transaction costs, risk, and regulatory constraints.Learn more

Lipper average

Lipper averages are benchmark performance measures for mutual funds, calculated by Lipper Inc, which provide a snapshot of the collective performance of funds within a particular category.

Liquid asset

Liquid cash refers to funds that are immediately available for spending and investment, such as money held in checking accounts or notes and coins.

Liquidating distribution

Liquidation distribution is the process of returning capital to shareholders after all assets have been sold and all liabilities have been settled during the winding up of a company.

Liquidation approach

The liquidation method of accounting assumes a company is not going to continue and prepares its financial statements as if it were to be liquidated, valuing assets at net realisable value.

Liquidation value

Liquidation value is the estimated total worth of a company's physical assets if it were to be terminated and the assets sold, typically assessed in preparation for possible bankruptcy or cessation of operations.

Liquidity

Liquidity refers to the ease with which an asset or security can be converted into ready cash without affecting its market price.Learn more

Liquidity at risk

Liquidity at risk is a measure used to assess the amount of liquidity an institution needs to have on hand to cover potential outflows under stressed conditions within a given time frame.

Liquidity crisis

A liquidity crisis occurs when an otherwise solvent business or financial institution experiences a sudden shortfall in its ability to quickly convert assets to cash without significant losses, impairing its ability to meet its immediate obligations.Learn more

Liquidity pool

In the context of decentralised finance, a liquidity pool is a collection of funds locked in a smart contract. Users provide liquidity to the pool by depositing assets into it and receive liquidity provider (LP) tokens in return, which can often be used to reclaim share plus transaction fees.

Liquidity Risk

Liquidity risk is the risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimise a loss.

Liquidity Trap

A liquidity trap is an economic situation in which interest rates are very low and savings rates are high, rendering monetary policy ineffective in boosting economic growth. In such a scenario, people prefer to hold onto cash rather than invest in the marketplace.

List of companies paying scrip dividends

Companies paying scrip dividends issue additional shares to shareholders instead of paying cash dividends, allowing businesses to preserve cash while still rewarding investors.Learn more

List of electronic trading protocols

Electronic trading protocols are the rules and standards that govern electronic trading activities on digital platforms, ensuring fair and orderly trading and the integrity of financial markets.

List of public corporations by market capitalization

Public corporations are ranked by market capitalisation, which is the total market value of a company's outstanding shares of stock. It is calculated by multiplying the company's shares outstanding by the current market price of one share.

Lit pool

A lit pool refers to a type of public financial trading exchange where all bid and ask orders and the identities of their traders are displayed to all market participants, enhancing transparency.

Load fund

A load fund is a type of mutual fund that charges investors a commission or sales charge, which is applied at the time of purchase or sale of shares, often used to compensate brokers or sales agents.

Loan

A loan is a sum of money borrowed that is expected to be paid back with interest. Loans can be for a specific, one-time amount or as an open-ended line of credit up to a specified limit.

Loan Note

A loan note is a type of financial instrument detailing the terms of a loan agreement, typically including the principal amount, interest rate, and maturity date, along with the issuer’s obligations.

Loan-backed securities (LBS)

Loan-backed securities are types of investments secured by a loan or other receivables. Unlike standard bonds, these securities are backed by tangible assets or loan payments.Learn more

Loan-to-value Ratio

The average loan-to-value ratio (LTV) is a risk assessment metric used by financial institutions and others before approving a mortgage. It compares the size of the loan to the value of the property.

Lock-up period

The lock-up period is a predetermined amount of time following an initial public offering (IPO) during which shareholders, such as company executives and employees, are restricted from selling their shares.

London Metal Exchange (LME)

The London Metal Exchange is the world's leading market for non-ferrous metals trading. LME offers futures and options contracts for metals like aluminum, copper, and zinc, providing a platform for price discovery and risk management.

London Stock Exchange Group (LSE)

The London Stock Exchange Group is a global financial markets infrastructure business. It operates a range of international equity, bond, and derivatives markets, including the London Stock Exchange.Learn more

Long Position

A long position in finance refers to the purchase of a stock, commodity, or currency with the expectation that it will rise in value. Investors who hold long positions benefit from price increases.

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Long squeeze

A long squeeze happens when the price of an asset drops, and investors holding long positions sell off their holdings in a panic, exacerbating the price decline, often leading to losses.

Long/short equity

Long short equity is an investment strategy used by hedge funds involving buying (going long) stocks that are expected to increase in value and selling short (going short) stocks expected to decrease in value.

Loss ratio

The loss ratio is a key performance indicator in the insurance industry, calculated by dividing the total losses paid by insurers plus adjustment expenses by the total premiums earned.

Low latency (capital markets)

Low latency trading involves financial trading platforms and systems designed to minimise response time between an instruction to buy or sell and the actual execution of the order, crucial for high-frequency trading.

Low risk investment

Low-risk investments are those that offer lower potential returns but also lower levels of risk, suitable for conservative investors. Examples include government bonds and stable value funds.

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Low-margin securities

Low margin refers to minimal profit made on a sale or business transaction, characterised by a small difference between the cost and the selling price of goods or services.