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Stock Market Dictionary - glossary of share terms

Here is a comprehensive list of investment related terms that you may come across when reading about investing in the share market. We hope that by including them here we will help demystify the jargon used by the investing community.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Amortisation

The deduction of capital expenses over a specific period of time.

Appreciation

The increase in value of an asset.

All Ordinaries (or All Ords)

Benchmarks of the Australian equity market comprising the weighted share prices of about 500 of the largest Australian companies. Recently replaced by the ASX 200.

Analyst

Also known as a Financial Analyst or Research Analyst. Analysts have expertise in evaluating investments, and typically are employed by stockbrokers, financial planners, fund managers or superannuation funds. They make buy, sell and hold recommendations on securities, and many specialise in particular stocks, industries or sectors.

Annual Report

A corporation's annual statement of financial operations, typically a glossy, colourful publication. Annual reports include a balance sheet, income statement, auditor's report and a description of a company's operations. The Australian Securities & Investments Commission (ASIC) require that all publicly traded companies file a detailed annual report with the Australian Stock Exchange and ASIC.

Arbitrage

The simultaneous purchase and sale of a security in order to profit from a differential in the price, usually on different exchanges or marketplaces.

ASIC (Australian Securities & Investments Commission)

The Government body responsible under the Corporations Act 2001 for regulating companies, company borrowings, and Australian Financial Services licensees.

Ask Price

Also known as Offer Price. The price a seller is willing to sell a particular stock for.

Asset

Examples includes cash, accounts receivable, inventory, real estate, and securities - anything of value that a corporation owns.

Asset Allocation

The division of an investment portfolio among major asset categories, such as bonds, shares, property or cash, usually to balance risk and reward appropriate for an investor's age.

ASX (Australian Securities Exchange)

The main Australian market place for trading equities, government bonds and other fixed interest securities.

ASX 200 (or ASX/S&P 200 Composite Index)

Main benchmark of the Australian equity market comprising the 200 largest and most frequently traded stocks on the Australian share market.

ASX Code

Also referred to as Stock Code or Symbol. A unique symbol assigned to a security.

B

Balance Sheet

A company's financial statement that reports its assets, liabilities, and net worth at a specific time. Liabilities and net worth always equal assets, hence the name "balance sheet."

Bear Market

An investor who believes that a stock or the market in general will decline. A bear market is an extended period of time in which there are falling prices in the overall market.

Beta

A mathematical measure of a stock's risk in relation to the overall market usually as measured against an index. A beta of less than 1.0 means that the stock's price is likely to move less than the market in general; a beta greater than 1.0 means the stock is likely to move more than the market. High-beta stocks are great to own in a bull market, but not so fun to hold in a bear market.

Bid Price

The price a buyer is willing to pay for a particular stock.

Breakout

A technical analysis term, used to indicate a rise in a stock's price above its resistance level (such as its previous high price) or drop below its support level commonly the last lowest price.) The assumption is that the stock will continue to move in the same direction following the breakout, which generates a buy or sell signal.

Blue Chip Shares

Stock in a well-established, financially sound and stable company that has a very good record of paying dividends.

Board of Directors

A publicly listed company's Board is elected by shareholders to oversee the management of the company.

Bonds

A fixed term investment option offered by a government or semi-government organisation with an undertaking made to repay the funds loaned by investors at a specific rate by a specific date.

Book Value

Usually Book Value per Share. Calculated by dividing the Net Worth of a Company (common stock plus retained earnings) by the number of shares outstanding?. This is the accounting value of a share of stock, the value of the company's assets a shareholder would theoretically receive if a company were liquidated.

Bonus Issue

A free issue of new shares to existing shareholders.

Broker

A company which is a member of the ASX.

Brokerage

Also referred to as Commission. The fee charged by aBroker for purchasing or selling shares for clients.

Bull Market

An investor who thinks the market or a specific security or industry will rise. A bull market is an extended period in which the market consistently rises.

Business Cycle

The cycle of economic growth and decline. There are four stages in the business cycle: expansion, growth, contraction and recession.

Buy and Hold

A long-term investing strategy in which an investor's stock portfolio is fully invested in the market all the time.

Buyout

The purchase of a company or a controlling interest of a corporation's shares. A leveraged buyout is accomplished with borrowed money.

C

Capital

Cash or goods accumulated and available for use in producing more cash or goods.

Capital Appreciation

A rise in the market value of an asset.

Capital Asset

All of a company's tangible property, including securities, real estate and other property.

Capital Expenditures

Funds used by a company to acquire or upgrade physical assets such as property, plant or equipment.

Capital Gain

The profit made when a share (or anything for that matter) is sold for greater than its original cost basis.

Capital Gains Tax

The amount payable on overall profits made from buying and selling shares.

Capital Loss

A capital loss occurs when the share is sold for less than its cost basis.

Capitalisation

The sum of a corporation's stock, long-term debt and retained earnings.

Cash Flow

The amount of cash a company generates during a period, calculated by adding non-cash charges (such as depreciation) to net income after taxes.

CHESS (Clearing House Electronic Sub-Register System)

The ASX’s settlement system that records share ownership.

Closely Held Shares

Shares held by individuals closely related to a company.

Closing Price

The price of a share at the end of a day's trading.

Commission

Also referred to as Brokerage. The fee paid to a Broker to buy or sell securities. A commission increases the tax basis of the purchased security (thereby reducing the eventual capital gain or loss). Commissions vary widely from broker to broker.

Common Stock

A class of stock in a company, normally with voting rights. Companies may have several classes of common stock, as well as preferred stock, or they may have a single class of common stock. Common stockholders are on the bottom of the ladder in a corporation's ownership structure, and have rights to a company's assets only after bondholders, preferred shareholders and other debt holders have been satisfied.

Confirmation

The written acknowledgment provided by a broker that a trade has been completed. It includes details such as the date, price, commission, fees, and settlement terms. Was previously known as a contract note.

Contract for Difference (CFD)

A derivative contract between two parties to exchange the difference between the purchase price and the sale price of an underlying security, e.g. ASX-listed shares.

Contributing Shares

Shares that have not been fully paid for and require further payment in the future.

Corner a Market

To acquire enough of a particular security in order to manipulate its price.

Corporation

A form of business organisation in which ownership is established through the issue of shares. A corporation is ongoing and the shareholders face only limited liability.

Corporate Action

Any action that affects the equity of a share such as dividends, share splits or consolidations, and share issues (bonus, rights, entitlement etc).

Current Assets

Appears on a company's balance sheet, representing cash, accounts receivable, inventory, marketable securities, prepaid expenses and other assets that can be converted to cash within one year.

Cyclical Industry

An industry, such as manufacturers of durable goods, whose performance is closely tied to the business cycle of the general economy.

Cum-Dividend

Means “with” dividend. Shares quoted cum dividend entitle the buyer (not the seller) to receive the current dividend. The price of the shares will usually reflect the amount of the dividend.

Current Liabilities

Appears on a company's balance sheet, representing amounts owed for interest, accounts payable, short-term loans, expenses incurred but unpaid and other debts due within one year.

Current Yield

The average annual rate of return received from an investment, based on income received during a year divided by the security's market price.

D

Day Order

An order to buy or sell a security that automatically expires if not executed on the day the order is placed.

Debt Financing

A company can raise working capital by issuing bonds or notes to individuals or institutions, along with a promise to pay interest as well as to repay the principal. The other major way of raising capital is to issue shares of stock in a public offering.

Debt Service

The repayment of interest and principal of a debt.

Debt/Equity Ratio

A measure of a company's financial leverage, calculated by dividing long term debt by shareholders' equity. A higher debt/equity ratio generally means that a company has been aggressive in financing its growth with debt, which can result in volatile earnings as a result of the additional interest expense.

Depreciation

An expense recorded regularly on a company's books to reduce the value of a long-term tangible asset. Since it is a non-cash expense, it increases free cash flow while decreasing the amount of a company's reported earnings.

Derivative

A financial product, like an option or future, whose value is derived from another underlying financial product.

Devaluation

A significant fall in the value of a currency, as compared to gold or another country's currency.

Dilution

Dilution is the effect on a company's earnings per share caused by the conversion of convertible securities or the issuance of additional shares. Dilution reduces earnings per share by increasing the number of shares potentially outstanding.

Diversification

The process of mixing a variety of different investments, types of industries, categories of risk or companies in order to reduce the risk in a portfolio.

Dividend

The share of a company's earnings that are authorised by a company's Board and paid (generally in cash) to a class of shareholders, usually half yearly. Payment made to shareholders by a company, based on the company's annual profit result.

Dividend Reinvestment Plan (DRP)

Plans offered by some companies for reinvestment of cash dividends by purchasing additional shares, on the dividend payment date, occasionally at a discount from market price.

Dividend Yield

The annual dividends paid by a company divided by its current stock price.

Dollar Cost Averaging

A technique of buying a fixed dollar amount of a particular investment, regardless of the share price; thus purchasing more shares when prices are low, and fewer shares when prices are high. Over time, the average cost per share of the security will become smaller. This method attempts to lessen the risk of investing a large amount in a single investment at the wrong time.

Dow Jones Industrial Average

A major index of the American stockmarket, an equivalent of the S&P/ASX 200 Composite Index.

Due Diligence

The process of disclosure to investors of all material information pertinent to an issue.

E

Earnings

Net income for a company during a specific period, generally (but not always) referring to after-tax income.

Earnings per share (EPS)

A company's net profit figure divided by the total number of shares outstanding.

Equity

On the balance sheet, the value of the funds contributed by the owners (the shareholders) plus the retained earnings (or retained losses). The balance sheet may list Shareholders' Equity.

Equity Financing

The process of selling common or preferred stock to raise working capital.

Exchange

An exchange is a market where securities, commodities, options and futures are traded, such as the Australian Securities Exchange, the New York Stock Exchange or the Chicago Mercantile Exchange.

Execution

The completion of a buy or sell order.

Ex-Dividend

Means “without” dividend. Shares sold ex-dividend entitle the seller (not the buyer) to retain the current dividend. Shares are usually quoted ex-dividend four business days before company’s book close.

F

Fixed Term Interest

An investment locked in for a set period, which is guaranteed a certain rate of interest for the duration.

Float

The initial public listing of a company that has previously been privately owned, or owned by the government.

Franked Dividends

Dividends paid to shareholders that have already had the tax on them paid for by the company.

Futures

A derivative financial product whereby commodities or other financial products are traded for a specified price on a specified future date. This occurs at the Sydney Futures Exchange or the London International Financial Futures Exchange.

Fundamental Analysis

A method of evaluating stocks based on fundamental factors, such as earnings, future growth, return on equity, profit margins, and so on, to determine a company's underlying value and potential for future growth.

G

Gearing

Also referred to as Leverage. The process of increasing funds available for investment through borrowing.

GICS (Global Industry Classification Standard)

Classification system established to provide a consistent set of global sector and industry definitions for share markets

Going Public

The process of selling shares that were formerly privately owned to new investors for the first time.

Good 'Til Cancelled

This is an order to buy or sell a financial product that is good until the client cancels it.

Growth Rates

The compounded annualised rate of growth of a company's revenues, earnings, dividends or another figure.

Growth Stocks

stocks in companies that are expected to return consistent capital growth to investors.

H

Head & Shoulders

A technical analysis term to describe a chart formation in which a stock price rises to a peak and then declines, and then rises above the former peak and again declines, and then rises again but not to the second peak and again declines. The first and third peaks are shoulders, and the second peak is the formation's head. This pattern is considered a very bearish indicator.

Hedge (or Hedging)

A transaction or process used to reduce or offset the risk of a current holding going down in value.

I

Imputation Credit

The tax credits passed on to a shareholder who receives a franked dividend.

Income Statement

A company's financial statement summarising revenues and expenses in a specific period, also known as a profit and loss statement.

Index (or Indices)

A means of representing the change in value of a basket of underlying securities in a particular market or sector of a market. Standard & Poors (S&P) assumed ownership of the Australian index business in 2002 and created the current index series that are internationally accepted as benchmarks of the market (e.g. ASX S&P 200)

Industry

One of any number of categories used to describe a company's primary business activity, usually determined by largest source of a company's revenues.

Industrial Stocks

Stocks in companies involved in the manufacturing and services sectors.

Inside Information

Information about a company's activities that has not been disclosed to the general public. It is illegal for anyone with access to such information to buy or sell financial products based on it.

Insider Trading

Illegal trading by anyone considered an insider who has access to non-public price-sensitive information, and who attempts to profit from that knowledge.

Integrated Trading System)

The Australian Securities’ Exchange automated trading system provided for the trading of financial products on ASX.

Inventory

Included on a company's balance sheet. Inventory is often referred to as stock and can represent raw materials or items already available for sale or in the process of being manufactured.

Inventory Turnover

The ratio of annual sales to inventory. Low turnover may indicate excess stock or poor sales.

Investment

An asset acquired for the purpose of producing income and/or capital gains for its owner.

L

Leverage

Also referred to as Gearing. The use of borrowed capital to increase the return of an investment.

Liability

The legal obligation to pay a debt. Current liabilities are debts payable within twelve months; long-term liabilities are debts payable over a period of more than twelve months.

Liquidity

The ease and certainty with which an asset can be converted into cash.

Listed Company

A company whose shares are traded on a Stock Exchange.

Long (or Long Position)

The owning of a financial product. An owner of shares of Telstra is said to be "long Telstra" or "has a long position in Telstra.

Long Term Assets

On the balance sheet, the value of a company's property, equipment and other capital assets, less depreciation. These are usually recorded "at cost" and so do not necessarily reflect the market value of the assets.

Long Term Debt

Loans with obligations of over one year on which interest is paid.

Long Term Liabilities

A company's liabilities for leases, bond repayments and other items due in more than one year.

M

Margin Lending

Using borrowed money to purchase financial products ("buying on margin").

Margin Lending Account

A brokerage account in which a company lends a customer cash to purchase financial products. The loan in the account is secured by the value of these shares, and if the value of the stock drops sufficiently the account holder will be required to deposit more cash, or sell a portion of the stock.

Margin Call

The demand that a customer deposit cash in an account.

Market Capitalisation

The total dollar value of all outstanding shares, calculated by multiplying the number of shares times the current market price.

Market Order

An order to buy or sell at the current market irrespective of price. See Limit Order.

Market Timing

An attempt to sell a stock or portfolio when a market is at a high and buying at a low.

Market Risk

The risk of a general decline in the market.

Market Value

The price at which investors buy or sell a security at any time.

Merger

The combination of two or more companies, generally by offering the shareholders of one company shares in the acquiring company in exchange for the surrender of their stock.

Moving Average

A technical analysis term. The average prices of a security for a particular period are charted in an attempt to determine recent trends.

N

Negative Gearing

When borrowed funds are used to purchase a financial product and the interest on these borrowings is higher than the profit realised resulting in a negative cashflow. This loss may be able to be offset against other income.

Net Asset Value (NAV)

Usually expressed as a per share amount. The value of a company or fund's investments.

Net Tangible Assets (NTA)

Refers to the net physical assets owned by shareholders of a company at balance date. An indication of what each share in a company is worth if all the assets were liquidated, all the debts were paid and the residual was distributed to the ordinary shareholders on a per share basis.

Net Income

The company's total earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest, taxes and other expenses.

O

Odd Lot

A buy or sell transaction involving less than 100 shares of stock.

Offer (or Offer Price)

Also known as Ask Price. The price a seller is willing to sell a particular stock for.

Operating Expenses

The day-to-day costs of running a business.

Operating Income

The profit realised from a business's operations.

Options

Generally defined as a "contract between two parties in which one party has the right but not the obligation to do something, usually to buy or sell some underlying asset". Having rights without obligations has financial value, so option holders must purchase these rights, making them assets. This asset derives their value from some other asset, so they are called derivative assets. Call options are contracts giving the option holder the right to buy something, while put options, conversely entitle the holder to sell something. Payment for call and put options, takes the form of a flat, up-front sum called a premium.

Ordinary Shares

The most common type of share, which gives holders direct equity in the company and the right to a share of the profits.

P

Public Companies

Companies listed on a Stock Exchange, thereby enabling them to be publicly owned.

Position

An investor’s or trader's ownership of a security, either long or short.

Portfolio

A person's investment holdings, representing several different investment options.

Preference Shares

A class of ownership in a corporation with a stated dividend that must be paid before dividends to common shareholders. These shares return a fixed dividend to the investor who does not usually have voting rights.

Price to Earnings Ratio (PER)

The number of times the price of a share covers its earnings. Sometimes referred to as the "multiple." Calculated by dividing the stock's current price by the company's current annual earnings per share. In and of itself, the P/E Ratio tells very little, but can be usefully compared to the P/E Ratios of other companies in the same industry, or to the market in general, or to the company's own historical P/E Ratios, in order to determine how much the market is currently willing to pay for a share of the company's earnings.

Profit Margin

Calculated by dividing annual net earnings after taxes by revenues, displayed as a percentage. Useful to compare stocks within industries - a higher profit margin indicates a more profitable company. Can also be calculated by dividing a company's pre-tax earnings by its revenues, known as the Pre-Tax Profit Margin. Since taxes can vary from year to year and from company to company, this may give a truer picture of a company's underlying profitability.

Program Trading

Computerised trading used primarily by institutional investors, typically for large volume trades, where orders from the trader's computer are entered directly into the market's computer system and executed automatically.

Prospectus

A formal written statement that discloses the terms of a public offering of a share or a managed fund. The prospectus is required to divulge particular essential information to potential investors about the proposed offering and the company's financial situation.

Proxy

A formal document signed by a shareholder to authorise another shareholder, or commonly the company's management, to vote the holder's shares at the annual meeting.

Q

Quotation (or Quote)

The current price being offered for a particular stock which is listed (or quoted) on the ASX.

R

Range

The difference between the high and low price of a security during a particular period.

Recession

A period of general economic decline, part of the usual business cycle.

Relative Strength

Calculated by dividing the performance of a stock's price over a period by a market index. Used to determine a stock's performance relative to the market and other stocks.

Retained Earnings

The percentage of earnings not paid out in dividends but retained by the company to be reinvested in its core business or to pay debt.

Return

The percentage gain or loss for a share in a particular period. The Real Rate of Return is the annual return realised on that investment, adjusted for changes in the price due to inflation.

Return On Assets

Calculated by dividing a company's annual earnings by its total assets, displayed as a percentage. Useful to indicate how profitable a company is relative to its total assets.

Return On Equity (ROE)

Calculated by dividing a company's annual income by its Book Value (or its earnings per share by book value per share), displayed as a percentage. It is a measure of a company's profitability.

Return on Investment (ROI)

What you earn from your investments, including dividends, interest or other income and realised capital gains.

Resource Stocks

Stocks in the mining and energy sectors.

Rights Issue

An issue of new shares to existing shareholders who have the right, but not the obligation, to purchase new shares issued by the corporation at a preset price, usually below the market price.

S

Settlement Date

For securities, payment must be made by the third business day after the purchase. This is the Settlement Date.

Equity in a company.

Short Position (or Short-Selling)

Where an investor, trader or fund manager borrows a security and subsequently sells the security with an obligation to purchase back the security and return it at a later date.

Short Selling

Selling a stock that you do not own. This is done in the hope that it will fall in price and eventually you can buy it back cheaper.

Spread

The difference between the ask and bid prices of a stock.

SRN (Security-holder Reference Number)

Allocated by an issuer to identify a holder on an issuer sponsored subregister.

Stamp Duty

A government tax on financial transactions.

Stapled Security

A security where investors are purchasing both a trust and a related company through one security. This structure binds the investment portfolio together with a related business that may include a funds management company and/or property development company.

Stock Split

A proportional increase in a company's outstanding shares. After the split, the market value of the shares remains the same, though the number of shares held by each shareholder is proportionately increased.

Stock Symbol

Also referred to as ASX or Stock Code. A unique symbol assigned to a security.

Stockbroker

A company who buys and sells shares on behalf of clients and is a member of the ASX.

Stop Loss

An order to sell a stock when its price falls to a particular point to limit an investor's losses.

T

Takeover

When one company takes over the ownership of another.

Tax Deferred

A tax concession usually found in Property Trusts or Infrastructure Funds where investors do not pay tax on the income (or distributions) they receive until they sell the security.

Technical Analysis

A method of evaluating securities by analysing data of a stock's market activity, generally price and volume. Technical analysts use charts to identify patterns that can suggest future activity.

Trade

A transaction involving the purchase and sale of a security.

Trading Float

The amount of capital set aside for trading.

Trading Halt

Defined in the ASX Listing Rules as an interruption to trading at the request of an entity that is not a suspension from quotation.

Trading Range

The spread between the high and low prices traded during a period of time.

V

Volatility

Measure of the amount of fluctuation in price of the underlying security calculated using the standard deviation of average daily price change.

W

Warrant

A warrant is a derivative entitling the holder to buy a specific amount of stock at some specific future date at a specific price.

Wrap Account

A wrap account is a system for administering an investment portfolio. They are used for transacting, reporting and the administration of all paperwork and are held on behalf of a nominee called the custodian.

Y

Yield

The percentage rate of return of the annual dividends paid on a stock.

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