Trading Glossary

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Accounts payable

Accounts payable are debts resulting from buying assets or receiving services on credit or on an open account. One can have accounts payable when he has not yet paid for the assets or services he has received.

Accounts receivable

Account receivable is the money that is owed to a company or an individual by those who have bought its goods or services and have not yet paid for them.

Accumulated depreciation

The difference between the cost of an asset and its expected residual value is allocated over the period of asset’s useful life. It is called depreciation arising out of use of the asset and is charged to the revenue every year. Accumulated depreciation is the total depreciation till a particular date for the asset.

Allotment of shares

On receipt of applications against issue of shares, the company decides to whom allot the shares and in what proportion. If an issue of shares is over- subscribed, i.e. the number of shares applied for exceeds the number available for issue, some applicants are refused altogether, or allotted lower number of shares. This process is called allotment of shares.

Annuity

An annuity is a kind of investment that promises payments of definite amounts at periodic intervals. In other words it is a series of identical fixed payments to be made for a specified number of years. An annuity is a sum of money paid at regular intervals, often monthly or annually.

Arbitrage

Arbitrage is a kind of deal to earn profit from differences in price between the two markets. An investor buys commodities, funds, mortgages, futures contracts, mortgage-backed securities or other securities in one market and at the same time sells them in another market at a differential price.

ASIC

ASIC, Australian Securities and Investments Commission, is the Australia’s corporate, markets and financial services regulator. It is a Government body empowered under the Corporations Law for regulating companies, company borrowings, and investment advisers and dealers.

Assets

Asset is something precious that a company or a person owns and which has money value (its cost, book value, market value, or residual value), such as cash, machinery, inventory, land and building.

Asset allocation

Asset allocation refers to diversifying money among different sorts of investment categories, such as stocks, bonds and cash. The objective is to help lessen risk and improve returns.

Audit

Audit is the activity of examining and validating a company’s accounting records, supporting documents and practices by an independent chartered accountant to check their accuracy.

Auditors

An auditor is a person appointed and authorized to audit or examine an account. For example, an Auditor examines the accounting records and practices of a company and submits Auditors’ Report to the shareholders of the company.

Authorised capital

Authorised capital is the maximum amount of share capital which a company is permitted to issue under the company’s Memorandum of Association. It is also called nominal capital.

Annual report

The annual report is a financial report or statement issued by a company to its shareholders. The annual report contains a statement of financial performance (income statement), a statement of financial position (balance sheet), a statement of cash flow, and notice of the Annual General Meeting (AGM) containing proposed business resolutions.

ASX (Australian Securities Exchange)

ASX (Australian Securities Exchange) is the recognised main market for trading equities, government bonds and other securities in Australia. It was established in 1987 as a result of the amalgamation of six state stock exchanges and has offices in most state capitals.

ASX code

Each company listed with the Australian Securities Exchange (ASX) is assigned a unique code to identify the company. This is called ASX code. For example, ASX code for Leighton Holdings Limited is LEI.

ASX Indices

ASX Indices are share price indices measuring the movement in share values trading on the Australian Securities Exchange (ASX). For example S&PT/ASX 200 index indicate the average price movement of the basket of 200 specified shares.ASX Indices is recognised as the benchmark for the Australian equity market and used by the individuals and investment managers.

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Bad debts

A bad debt is money owed to you that you are not able to collect. It represents losses which should be written off against the revenue. Normally it occurs when products or services are provided on credit or loans are given to someone and the debts or interest are not paid by the creditor or borrower.

Bid

Bid is the price at which someone is prepared to buy the securities, say shares, in the market. It is the maximum price any buyer is eager to pay for a given security at a given time.

Blue Chip Stocks

A “blue chip” is the nickname for the securities of high quality companies known for their outstanding performance .Such companies are generally leader in the industry. Their shares are very liquid and widely traded in the market.

Bear Market

Bear Market is a phase in the share market when share prices are falling and are expected to fall further. It is a market with falling prices. A bear is said to ‘claw’ the prices down.

Benchmark

Benchmark is a standard, or a set of standards, used as a point of reference for comparing performance or level of quality. Benchmarks may be drawn from a firm’s own experience, from the experience of other firms in the industry, or from legal requirements such as environmental regulations.

Bond

A bond is a fixed interest financial asset usually issued by governments or semi-government, companies, banks, public utilities and other large entities to raise money Bondholders are paid a fixed rate of interest over a set period of time. The interest may be paid periodically or along with the bond amount on the predetermined maturity date.

Bull Market

A Bull Market is a phase in the share market when share prices are rising and are expected to rise further. It is a market with rising prices. This is generally a period of great optimism. Someone who is very optimistic about the market is called “bull”. It got its name so, because when a bull attacks, it throws its horns up in the air.

Bullish

Bullish refers to an optimistic outlook. A bullish market believes that a particular security, a sector, or the overall market is about to go up. The word is opposite of bearish.

Balance date

Balance date is the date at the end of an accounting period, by which all ledger accounts are closed and balances. It is also called the reporting date for the company’s annual report.

Balance sheet

The Balance Sheet of a company shows the financial position of the company at a particular point of time. It is a statement summarising the assets and liabilities of a company. It is like a snapshot of a company’s financial position at a specific date.

Barriers

Factors that create it hard for a company to go into an industry or kind of business and compete effectively. These can include incumbents’ high capital investment and strong economies of scale, restrictive government policies, labour unions, etc.

Basis risk

Basis risk is the risk associated with imperfect hedging using futures. It could arise if movements in the price of a futures contract do not correlate exactly with movements in the price of the underlying financial instrument or commodity. This may be because of a mismatch between the expiration date of the futures and the actual selling date of the asset.

Beta

A measure of the price volatility of a security or portfolio, compared to overall movements in the share market as a whole. The overall market is considered to have a beta of one. A security with a beta above one is more volatile than the overall market, while a beta below one is less volatile. The measure can be used in portfolio management to limit risk.

Books close date

The date at which a company’s share registers is closed off to recognize the shareholders and to work out any entitlement to new issues and dividends.

Bonus Dividend

An abnormal dividend declared out of profits and issued to a shareholder in addition to the normal dividend and is unlikely to be repeated in future periods. Sometimes bonus dividend is not paid in cash and is used towards the payment, of amounts owing on a new share issue or on any uncalled capital on shares earlier issued.

Bonus Shares/Issue

New shares issued free of charge to its shareholders, generally it is issued in ratio to the number of old shares already held. Normally, a bonus issue will cause the existing share price to fall as the value of the company’s assets is now spread over a larger number of shares.

Brokerage

The term brokerage refers to a fee paid to a licensed firm or a person (known as a broker) that buys and sells stocks for its clients. There are many kinds of brokerage. Full service broker provides research and advice to clients and sometimes, financial planning.

Business cycle

Business cycle is the period during which a business, an industry or the entire economy expands and contracts. It is also known as the economic cycle. The increase and fall of the economy, from a peak, or boom, to a trough (sometimes called a depression) and back to a peak.

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Call option

Call option is an option contract that allows the holder the right but not obligation to buy a specified quantity of an underlying security from the writer of the option, at a particular price (the strike price) on or before a specified date (the expiration date).

Capital

Capital is money that is invested in a business, or in long term assets. Capital is something owned which provides fund for setting up new business or expansion of the existing business.

Capital gain

The capital gain is the positive difference between the net proceeds from sale of a security or other capital asset and its initial cost. The capital gain is because of appreciation of assets. Here the proceeds exceed the cost.

Capital loss

The capital loss is the negative difference (loss) between the net proceeds from sale of a security or other capital asset and its initial cost. Here the cost exceeds the proceeds.

Cash

Cash is the money in the form of currency, coins and includes cheques, and balances in bank accounts. It is the most liquid form of current asset.

Cash flow

Cash flow is the amount of net cash produced by an investment or a business during a specified period. Net cash flow is the cash receipts (inflows) less the cash payments (outflows).

Company name

Every company has a name which is required to be registered with AISC. The company name of a listed company is its complete name, as reported to the Australian Securities Exchange.

Capital growth

Capital growth is an increase in the value of investment in capital asset such as shares. Capital growth is realised as a capital gain when the asset is sold for more than its purchase price.

Cash settlement

Cash settlement is the settlement of a futures contract or an options contract in cash rather than in the asset underlying the contract. For example, stock index futures call for cash settlement because it is not feasible actually to deliver an index and hence settled by allocating a dollar amount to each index point.

Chess

CHESS stands for the Clearing House Electronic Subregister System. Chess is an electronic system that settles transactions made on the Australian Securities Exchange. CHESS is operated by the ASX Settlement and Transfer Corporation (ASTC), a wholly owned subsidiary of the ASX. Under Australian corporate law, all equity securities are held in electronic form and ownership is settled by electronic transfer of share through CHESS.

Child entity

An entity is a child entity of another entity if the other entity is its holding (parent) company or has control over it. A child entity is also called a subsidiary.

Company with limited liability

A company with limited liability is a company whose members have a limited liability to the company’s actions. A member’s liability is limited to the amounts paid and unpaid on the shares held or guarantee undertaken by him.

Contract note

A contract note is a written document confirming a transaction between two parties .It contains the complete description of the transaction such as the date and time of deal, the title of the security, the number bought or sold, the price, and the commission. It may be between two dealers or a broker and a client.

Conversion ratio

The conversion ratio is the number of shares into which a convertible security may be exchanged. The conversion ratio is determined at the time of issue of the convertible security and has an impact on the relative price of the security.

Contract size

In futures and options, each contract has a well defined the size or amount of an asset to be delivered. For example, if an equity option has a contract size of 1000 shares and if the option is exercised, 1000 shares of the underlying company must be transferred between the option holder and writer

CFD – Contract For Difference

Contract For Difference is a contract between two traders to pay and/or receive the difference between the buying and selling contract values. It is an instrument that allows traders to speculate on the direction of stocks or indices without having full ownership of the underlying contract. The two parties make a contract that the seller will pay the buyer the difference in price after a certain period of time if the designated security’s price increases, and the buyer will in return pay the seller the difference in price if the security’s price decreases.

Corporation

A business structure in which the company is seen as its own legal entity apart from its owners, and given rights and liabilities similar to those of a person. A corporation is able to buy and sell property, enter contracts, bring lawsuits, and pay taxes.

Corporations Law

Corporations’ law is the law dealing with the regulation of companies. It is also known as company law or corporate law. Corporate law deals with management of the company and interaction among shareholders, directors, employees, creditors, and other stakeholders.

Cum dividend

Cum means ‘with’. A cum price means the buyer is entitled to any recently declared dividend or rights shares or bonus shares. The cost of the shares will generally include the amount of the dividend.

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Delta

Delta is a percentage value of the amount that an option premium can be expected to change for a given unit change in the underlying futures contracts.

Dividend

A dividend is a share of a company’s profits that it pays to investors. It is a distribution of profits to the shareholders of a company usually paid in cash and normally expressed as cents per share. When a dividend is paid more than once a year, dividends other than the final dividend are called interim dividends.

Debenture

Debenture is a loan raised a company at a fixed rate of interest and for a fixed term, generally one to five years or more. The interest paid to them is a charge against profit in the company’s financial statements. Debenture holders have no voting rights.

Delisted

A company is said to delist when its name is removed from the Official List of the Stock Exchange and its shares are no longer quoted. Sometimes a company gets it delisted voluntarily for some reasons.

Debt capital

Debt Capital is the capital raised through the issuance of bonds, debentures, etc. Debt capital generally refers to long-term loans, specifically bonds, rather than short-term loans to be paid off within one year.

Depreciation

The difference between the cost of an asset and its expected residual value is allocated over the period of asset’s useful life. It is called depreciation arising out of use of the asset and is charged to the revenue every year.

This term is also used to refer a decline in the value of one currency in relation to another. A unit of the currency which has depreciated buys fewer units of the other currency.

Derivative

A derivative is a security or an instrument whose price is dependent or derives its value from an underlying instrument (such as shares prices, share price indices, fixed interest securities, commodities, currencies etc). Warrants and exchange traded options are types of derivatives.

Diversification

Spreading investments over a variety of investment categories such as shares, debentures, gold, and other property in order to reduce risk.

Diversified portfolio

A portfolio that consists of variety of securities so that the percentage of any security is not very large . The risk of a well-diversified portfolio closely approximates the systematic risk of the overall market, and the unsystematic risk of each security has been diversified out of the portfolio.

Dividend amount

A dividend is a share of a company’s profits that it pays to investors. The dividend amount is the amount of dividend per share a company pays to stockholders.

Dividend yield

It is percentage calculated by taking the amount of dividends paid per share over the course of a year and dividing by the stock’s market price.

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Earnings

Earnings are the income or profit of a company during a period. . Earnings are expressed as gross or net and may refer to after-tax or before tax.

Earnings per share (EPS)

EPS is the company’s earnings divided by the number of ordinary shares. It shows how much each share earns over a period of 12 months.

EBIT

EBIT stands for Earnings Before Interest and Taxes. It is a measure of a company’s earnings performance. It also indicates the company’s capacity to pay off creditors.

Electronic holding statement

With the introduction of dematerialization, the share certificates are not kept in physical form. All security holdings on ASX are now registered and maintained electronically. The electronic holding statement is an evidence of the ownership of securities.

Ex Dividend

Ex- dividend means “without dividend.” Shares sold ex-dividend entitle the seller to retain the current dividend. The buyer of shares when they are quoted ex-dividend is not entitled to receive a declared dividend. It is generally the interval between the record date and the payment date during which the stock trades without its dividend.

Ex Rights

Ex- rights means “without rights.” Shares sold ex-rights entitle the seller to retain the current rights. The buyer of shares when they are quoted ex-rights is not entitled to participate in a New Issue. It is generally the interval between the record date and the date during which the stock trades without rights.

Exercise price

Exercise price is the predetermined price level at which the taker (buyer) of an option or warrant may buy/sell the underlying asset. This is also known as the strike price.

Expiry, expiry date, expiration

Expiry date is the last day that an option may be exercised into the underlying futures or actual commodity contract. If not exercised or assigned, the option ceases to exist. All unexercised options or warrants expire after that day.

Exchange Traded Fund (ETF)

Open ended listed investment fund that closely tracks the performance of an index. It combines some of the characteristics of shares and managed funds. It provides returns that closely correspond to the total return of the stocks included in the index.

Equities

Equities are another name for shares or stocks. It represents amount of ownership in a corporation and permits the investors to share the company’s income. However, equities holders carry the right to company’s assets only after creditors and preference-share holders are completely paid.

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Face value

Face Value of securities is the amount at which securities are issued. Face value is also known as the nominal or stated amount of security. For example, the face value of a bond is the amount the issuer agrees to pay upon maturity and the amount upon which interest payments are determined

FID

FID stands for Financial Institutions Duty. It is a tax on monies paid into financial institutions imposed by all state governments in Australia. Financial institutions usually pass the tax on to customers.

Financing activities

Financing activities are the activities which relate to the financial structure of the entity. The financing activities change the size or composition of the financial structure of the entity such as, equity, and borrowings. These are shown separately in the cash flow statement.

Fixed assets

Fixed assets are the tangible assets having usable life of more than 12 months. Plant, machinery and equipment, furniture and fixtures, and leasehold improvements include the fixed assets of most companies. They are normally represented on the balance sheet at their net depreciated value and not likely to be exchanged easily into cash in the normal course of events.

Foreign company

Foreign company is a company or a corporation which is incorporated under the laws of a different nation. A Body corporate incorporated outside Australia is a foreign company.

Forex CFD

A Forex CFD is an agreement between two parties, in which the seller agrees to pay the buyer the difference between the current value of a currency and the value of the currency at the time of the contract. The seller profits from a decline in the value of the currency.

Futures

Futures are derivatives to buy or sell a particular asset (or cash equivalent) on a specified future date at a specified price. Futures are standardized, transferable, exchange-traded contracts.

Futures contract

A futures contract is an agreement between two parties to buy or sell a particular asset (or cash equivalent) on a specified future date at a specified price.

Fund manager

The fund manager is someone who manages a mutual fund funds on behalf of a financial institution. The fund manager is responsible for deciding what stocks and bonds to purchase and how much to purchase. The fund manager may be an individual or an institution.

Fundamental analysis

An analysis based on financial data of a company to assess the company’s future performance. The fundamental considerations such as supply, weather, government statistics, crop conditions, and demand are used to determining future price trends in stocks.

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Gearing

Gearing is a measure of financial leverage, demonstrating the degree to which a firm’s activities are funded by owner’s funds versus creditor’s funds. It indicates the extent of the use of long-term debt in financing an entity. It gives the relationship between debt finance and equity finance.

Government Bond

Government Bonds are the fixed-income debt securities issued by the government, such as notes, and bonds. These are usually for long term and Interest is payable periodically at a fixed rate.

Growth

Economic expansion of the company as measured by any of a number of indicators.

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Hedge

An investment made in order to protect the possible loss of adverse price movements in a security, by taking an offsetting position in a related security, such as an option or a short sale.

Hedge Funds

Hedge funds are usually privately-owned investment funds with aggressive strategies, and are not regulated like mutual funds. In addition to a management fee, hedge funds also collect a percentage of the profits earned on investments.

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Institution

A term used to denote the large investment funds such as insurance companies, pension funds, trusts, foundations, mutual funds, funds-managers, bank investment departments whose work involves lending or investing large sums of money.

Interest

Interest is a kind of payment made by the borrower for using other people’s money. To the borrower it is the cost of renting money, to the lender the income from renting (lending) it out.

Interest cover

A ratio of a company’s EBIT divided by the net interest payments. It shows the number of times interest payments are covered by earnings before interest and tax (EBIT). The interest coverage ratio measures the company’s ability to pay interest to the creditors. The higher the interest cover, the greater is the company’s ability to meet interest payments.

Index (Indices)

A measure of a change in value for a set of assets. Indices measure the movement of prices of in the market or a range of sectors of the market. They provide a broad outline as to how the market is performing. Standard & Poor’s (S&P) calculate many of the indices available over the Australian share market e.g. ASX indices

Index derivatives

Index derivatives are derivative contracts which have the index as the underlying. The most popular index derivatives contracts are index futures and index options.

Index Fund

A fund whose portfolio matches the components of a particular index. It tries to replicate the index returns. It does so by investing in index stocks in proportions in which these stocks exit in the index.

Index futures

A futures contract on an index (such as a foreign stock index) in the futures market is called index future.

Index options

An option whose underlying security is an index is called index options. If exercised, settlement is made by cash payment, since physical delivery is not possible.

Initial Margin

The amount that must be deposited in the margin account at the time of a futures contract is first entered into is known as initial margin. It covers the maximum probable one-day move in the price of the futures contract, as assessed by ACH based on a computer generated formula.

Intangible assets

The asset that cannot be touched or seen but that have value is called Intangible assets. Intangible assets include franchise rights, goodwill; no compete agreements and patents, among others. It can be defined as a nonphysical claim to future value or benefits.

Intrinsic value

The real value of a company or an asset based on an underlying perception of its accurate value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the present market price.

Insolvency

The incapability of paying debts as and when they become due and payable.

Interim dividend

A dividend is a share of a company’s profits that it pays to investors and is generally declared at AGM. When a dividend is paid more than once a year, dividends paid between two AGMs are called interim dividends. The dividend other than the final dividend is known as interim dividend. Interim dividend is declared and distributed before the company’s annual earnings have been calculated.

Investment

Investment is the process of using savings in order to get some return on it .It is producing of additional money through the use of capital.

Issued shares

Issued shares are the portion of authorized shares that have been allotted to and held by the shareholders of a company.

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Knock-out option

An option with a built in mechanism to expire worthless, if the underlying instrument reaches or crosses a certain price level. The option becomes worthless and is knocked out.

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LEPOs (Low exercise price options)

A type of European exercise, European style option. Stock LEPOs have an exercise price of 1 cent, while index LEPOs have an exercise price of 1 point.

Limit

The price limit for an order. If, for example, a buyer places an order and specifies a limit of $2.00, this means that the buyer is willing to pay any price up to and including $2.00 for the security.

Limited liability company

A company whose members’ liability is limited by either shares or guarantee. In the case of shares, liability is limited to any unpaid amount owing on the shares. In the case of guarantee, liability is limited to the amount agreed to be contributed if the company is wound up.

Limit order

An order which instructs the broker to buy or sell a security at a specified price or better.

Line chart

A chart showing the daily closing prices for a stock, joined by a single, continuous line.

Linear regression

A statistical indicator used on charts to give information on price trends and possible trading entry and exit points.

Liquidity

The ability to quickly and easily turn assets into cash, with minimal effect on price. Liquid markets have enough potential buyers and sellers to make it easy to purchase or sell securities.

Listed company

A company which is listed with the ASX so that its shares can be bought and sold. A company must agree to abide by the ASX’s listing rules, which cover procedures to be followed, before being listed.

Listing rules

Rules set down by the ASX that cover procedures to be followed by all public companies and trusts listed on the exchange.

Long position

A position where shares or CFDs are bought at a low price and later sold at a higher price.

Low

The lowest price that a stock reaches on a particular day.

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MACD (Moving average convergence divergence)

A chart indicator which plots the movement of two exponential moving averages above and below a zero line. It can be used as a guide to when to buy and sell.

Maintenance call

A request from a margin lender to an account holder to increase the equity in the account when the account balance has fallen below a pre-set minimum amount. This can be done by either depositing money into the account or selling some of the securities held. Also called a margin call.

Managed investment

A professionally managed asset portfolio which investors are able to purchase a portion of. A number of units in the fund are allocated, depending on the amount invested. The investor is entitled to receive dividends and profits, but may also be subject to losses if the portfolio’s value decreases.

Margin

The monetary amount required to cover the risk of financial loss on options, futures or CFDs, as calculated by the Australian Clearing House (ACH).

Margin interval

Represents the maximum amount of movement in an underlying asset which is likely in one day. It is calculated by the Australian Clearing House (ACH), and is expressed as a percentage and used in the calculation of margins.

Margin lending

A system where financial institutions or brokers lend investors money to invest in approved securities. This allows the investor to own a larger portfolio than would be possible if using just their own private funds. If the value of the securities purchased with the borrowed money falls too far below the loan balance, a maintenance (or margin) call will be made by the lender.

Market order

An order lodged by an investor, with their broker, to buy or sell at market price.

Market price

The current price of shares traded on the ASX. It could be either the last price that the shares traded at, or the most recent bid or offer price.

Maturity

The date on which a contract no longer exists.

Merger

The joining of two or more businesses into a single economic entity.

Moving average

A chart analysis indicator that allows comparison of price on a particular day with average prices over a number of days. Moving averages can be either simple, in which all days in the period being averaged are given equal weighting, or exponential, in which greater importance is placed on the most recent prices and the least significance on the oldest prices.

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NASDAQ

A major stock exchange in the United States. The acronym originally stood for National Association of Security Dealers Automated Quotation.

Net assets

Total assets less total liabilities.

Net asset value

The total value of an investment fund’s underlying portfolio minus fees, charges, expenses and other liabilities.

Net profit

The surplus of all revenues and gains in a certain period over the all the expenses and losses in that period.

Nikkei

An index of share prices in Japan.

No liability company

A public mining company whose shareholders are not legally bound to pay the unpaid part of shares held. Denoted by NL after the company’s name.

Non-renouncable rights

A rights issue which the shareholder can either take up or forfeit, but cannot trade it on the market.

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Offer

The price at which a shareholder is willing to sell their shares.

Off-market transfer

The transfer of shares directly from one party to another without a stockbroker acting as intermediary. Executed via the completion of an “Australian Standard Transfer Form”.

Open

The first price that a stock trades at for the day; the opening price.

Open interest

The number of contracts outstanding (open) in a certain series or class of options.

Option

A contract which gives the buyer (called the taker) the right, though not the obligation, to buy a security at a certain price within a set period of time.

Ordinary shares

A class of shares in which the shareholder is a part-owner of a company and may receive dividends from any company profits. If a company is wound up, holders of these shares have no preferential rights to dividends or capital. Ordinary shares are the most commonly traded security in Australia.

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Paid-up capital

The amount of capital paid, or recorded to have been paid, by shareholders on issued shares. Calculated by deducting the issue capital that has not been paid from the balance of the authorised capital account.

Partly-paid shares

Shares which are only partially paid for when issued. For example, shares with a par value of $2.00 could be issued with $1.00 paid and $1.00 still owing.

P/E (Price/earnings ratio)

The number of times that the price of a security covers the security’s earnings over a period of twelve months. Commonly used by investors to compare securities in different companies and as a guide to the attractiveness of a particular security.

Pivot point

The point at which a trend changes direction. It is the absolute high or low of a trend.

Point and figure chart

A chart which shows changes in price direction only, without taking time into account.

Portfolio

A collection of assets owned by a single tax entity.

Position

Holding, or planning to hold, equity in the stock market. Open positions are those that have been bought but not yet sold. A closed position is one which has been sold.

Preference shares

Shares that are ranked before ordinary shares if the issuing company is liquidated.

Premium

The amount payable by the taker (buyer) of an option to the writer (seller).

Private equity fund

A fund or company which invests in small to medium private companies. Also known as venture capital.

Proprietary company

A company which is privately owned and not listed for trade on a public exchange.

Proxy

A written authorisation which is given to one person by another giving the first person the right to act on behalf of the second person in situations such as attending and voting at shareholders’ meetings. The person given the authority to act is also called the proxy.

Public company

A company that is listed on a stock exchange, thus allowing the general public to become part-owners of the company by purchasing shares in it.

Put option

An option contract giving the holder the right, though not the obligation, to sell the underlying asset at the exercise price. With American exercise options, this can be done at any time up to expiry. With European exercise options, this can be done at expiry only.

Put warrant

A warrant contract which gives the holder the right, though not the obligation, to sell the underlying asset at the exercise price at or prior to a fixed expiry date.

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Quote

A live market quote shows the best bid and offer prices available at that time. A previous day quote shows the best bid and offer prices at the close of trade the previous day.

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Realise

To cement a gain by selling an asset for cash.

Record date

The date by which shares in a company must be officially owned in order for a shareholder to be entitled to receive dividends payable.

Redeemable preference shares

Shares that can be resold to the issuing company on a specified maturity date for their face value plus any dividends payable.

Renouncable rights

A rights issue where the shareholder has the choice of taking up the rights, letting them lapse, or trading them on the market.

Resistance levels

Price levels that a stock’s price will repeatedly rise to before falling again. If the price breaks through a resistance level and continues to rise, this same level may later become a support level when prices fall again. Resistance lines are horizontal lines drawn on charts to assist in deciding when to buy and sell stocks.

Return (on investment)

The amount earned on investments. Includes interest, dividends and realised capital gains and is usually expressed as a percentage of the amount invested.

Reversal

A change in direction of price or trend.

Rights issue

An offer to a company’s shareholders to buy extra shares in the company, generally at less than the current market price.

Risk

The chance that an investment will incur a loss. Investments with a possibility of high returns generally have higher risk while investments that are likely to have low returns have lower risk.

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S&P ASX 200

The benchmark for stocks listed on the ASX, comprising 200 of the top traded companies.

SEATS

Stock Exchange Automated Trading System.

Securities

A general term for shares, options, warrants, CFDs, etc.

Settlement date

The date by which an executed order must be completed. This means that the buyer must pay for, and the seller must deliver, the securities by this date. Settlement date is three business days after the order is executed.

Share registry

An organisation which records changes to share ownership, issues statements of share holdings, and makes adjustments for dividend payments, bonuses and rights issues, on behalf of a company.

Shares

A type of security which represents part-ownership of a company. They are classed as either ordinary, preference or partly-paid (contributing) shares, with ordinary shares being the most common.

Share trader

Someone who buys shares, holds them for a short period only (generally between a day and several months), then sells them again with a view to maximising profit. As opposed to an investor who holds stocks for a longer term (possibly years).

Short selling

The act of selling a security which one does not own. The security is borrowed, then sold, but must be bought back again later and returned to the owner. It is generally done to profit from falling prices, with the security being sold at a high price and bought back at a lower price.

Small cap stocks

Companies which have a small capital base. They are more volatile than blue chip stocks but more stable than speculative stocks. Potential gains, or losses, are generally higher than with blue chips.

Speculative stocks

This is a term usually applied to some start-up companies, particularly in the mining sector. They generally have few assets. They are more volatile than both blue chip and small cap stocks, and have the potential for large gains or losses.

Spread

In relation to shares, this is the difference between the bid price and the offer price. In relation to options, it is an investment strategy which entails purchasing one option and selling a second on the same underlying security.

SRN

Security-holder reference number. A number allocated by a security issuer to identify a holder on an issuer sponsored or certificated subregister.

Stochastic oscillator

An analysis indicator which compares today’s stock price with the range of prices that the stock has traded in over a set period. It can be used as a guide as to whether the stock has been overbought or oversold.

Stocks

Another term for shares or equities.

Stock exchange

A market for the buying and selling of securities.

Stop loss

A trading method used to minimise losses by indicating to exit a trade if prices fall to a certain level. A stop loss order is an order placed with a broker to sell a security if the price falls to this level.

Straight through processing

When an order placed online with a broker is sent through to the ASX within seconds. There is usually a system in place to detect any orders that may have been entered incorrectly and these are checked with the person/company placing the orderprior to sending to the ASX.

Strike price

Another term for exercise price.

Substantial shareholder

A person or company which holds greater than 10% of a company’s voting rights.

Support levels

Price levels which a stock will repeatedly fall to and then reverse from. If prices fall through a support level, this same level may later act as a resistance level when prices rise again. Support lines are horizontal lines drawn on charts to assist in deciding when to buy and sell stocks

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T+3

Transaction date plus 3 working days. This is the usual settlement time for stocks traded on the ASX.

Takeover

The acquisition of control of a company through the purchase of a majority of its shares.

Taker

The buyer of an options contract.

Technical analysis

A method of identifying possible future investment opportunities by studying previous price movements. Charts and various indicators are used to identify trends, which are then used as the bases for predicting what might happen to prices in the future.

Time value

The amount by which an option premium exceeds intrinsic value.

Trading halt

An interruption to trading which has been requested by an entity whose securities are available for trade on the ASX.

Trend

The general movement in prices over a period of time.

Trend line

A line drawn on a chart showing the rise or fall in prices.

Trust

A fund which holds a portfolio of securities on behalf of investors who hold units in the trust. Trusts usually concentrate on either equities, property or cash management.

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Underlying instrument/Underlying security

An asset which the holder has the right to buy or sell, or against which a cash payment is made when exercising an option or warrant. It could be a security (eg. shares), a share price index, a currency or a commodity.

Unfranked dividends

The portion of share dividends subject to Australian income tax.

Unrealised gains

Gains which have not yet been converted to cash because the security which has increased in value has not been sold yet.

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Volatility

A measure of the amount of price variation in securities. The greater the variation, the more volatile the security.

Volume

The number of securities traded in a certain period.

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Warrant code

A six-letter code given to warrants that are listed on the ASX. The first three letters denote the underlying security. In the case of equity warrants, this is usually the same three-letter code assigned to the underlying company’s shares, though it can also represent a group of stocks. The fourth letter identifies the warrant type, and the fifth, the warrant issuer, with the sixth being a sequential code.

Warrant issuer

The financial institution that issues the warrant. To be eligible to issue warrants, the institution must meet the criteria set down in the ASX business rules.

Warrants

Financial instruments issued by a bank or other financial institution that are traded on the ASX. They may be issued over such things as shares, share price indexes, currencies or commodities. They are loosely divided into products for either investment or trading purposes.

Warrant series

All warrants that have the same underlying asset, terms of issue, warrant issuer, exercise price, expiry date and settlement procedure. Each series has a unique warrant code.

Working capital

The amount of capital required to enable a business to carry out its day-to-day activities. Current assets less current liabilities.

Writer

The seller of an options contract.

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Yield

Return on investment, usually expressed as a percentage.

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