Trading Basics | Trading Education | Basics Of Trading | Trading Pursuits

Stock market language is part of the unique excitement that share investing offers.  It can be colourful, sometimes dramatic and occasionally looks like secret code for those ‘in the know’.  Learning the language is an important part of the process of becoming a successful investor or trader.  This glossary will give you an understanding of some of the more common terms. 

All Ordinaries Index
The most accepted benchmark of aggregate changes in share prices that is used to monitor the Australian stock market.

Annuity  The payment of a fixed sum at regular periodic intervals.

Arbitrage 
Buying and selling the same or equivalent securities at the same time in different markets in order to profit from a difference in price.

Ask price: 
The lowest price that sellers are willing to accept, also called the offer price.

Asset allocation 
The systematic placement of funds into various classes of securities in a portfolio.

Associate company 
A company in which between 20-50% of the ordinary shares are owned by another company.

At best 
An instruction given by a client to buy or sell at the broker’s discretion as to price, also called at discretion.

At limit 
An instruction given by a client to buy or sell but placing a limit on the highest price to be paid or the lowest price at which to sell.

Australian Securities and Investment Commission (ASIC) 
The government’s corporate regulatory body and watchdog over the securities markets.

Australian Stock Exchange (ASX) 
The only market in Australia where listed securities are traded.

Averaging down 
Buying more of a security as its price falls in order to establish a lower overall average cost of the total purchases.

Bear Market 
A market where share prices are continuously falling in value.

Benchmark  An index or other measurement used to assess the risk and performance of a portfolio.

Bid price 
The highest price that buyers are willing to pay for a share.

Blue chip stock 
Shares in leading companies that are considered to be of high quality in terms of market position, earnings, dividend record and financial strength.

Board (of directors) 
A group of individuals elected by shareholders to formulate and direct a company’s policies and objectives.

Bond 
A fixed interest security usually issued by the Commonwealth government or a semi-government authority.
Bonus issue  Distribution of additional shares, without charge, on a pro rata basis to existing shareholders.

Bottom (out) 
When the lowest price will be reached and a reversal of the trend can be expected.

Breakout 
A price rise above a resistance level or a price decline below a support level.

Broker 
See Stockbroker

Brokerage 
The fees charged by a stockbroker for buying and selling securities on behalf of a client.

Bull market
A market where share prices are continuously rising in value.

Call 
A demand for money due on contributing shares or partly-paid shares.

Capital 
The funds invested or needed to be invested in a company.  Similarly, the funds an individual or fund manager has available to invest in securities.

Capital gain (loss) 
The difference between the price paid for a security and the price received on its sale.

Capitalisation 
The market value of a company that is found by multiplying the number of ordinary shares outstanding by the current share price.

Charting 
See technical analysis

CHESS 
The ASX Clearing House Electronic Subregister System that is used to transfer uncertificated holdings electronically.

Commission 
See brokerage.

Contract note 
A document sent to a buyer or seller by a stockbroker confirming that a transaction has been completed and providing all of the details such as company name, price, quantity, brokerage fees and stamp duty.

Contributing share 
Ordinary shares that are not fully paid up to their par or nominal value.

Correction 
A price decline after a period of rising prices (opposite of rally).

Day only 
An order that is cancelled at the end of the day if it is not executed.

Dealer 
A person who places orders to buy and sell and who has a licence to do so issued by the ASIC.

Delisted 
Removal of a security from trading on the ASX.

Derivatives 
Securities that represent claims on an underlying asset, examples include options and futures contracts.

Dividend 
That part of company profits that is distributed to shareholders, usually expressed as an annual amount per share to cents.

Dividend imputation 
A tax credit attached to a dividend, known as a franking credit, for the company tax that has already been paid on the company’s profits.

Dividend reinvestment plan (DRP) 
A scheme whereby shareholders can elect to receive their dividends in shares (usually at a discount from the current market price) rather than in cash.

Dividend yield 
Dividends per share divided by the current share price.

Earnings per share (EPS) 
Net profit for ordinary shareholders after tax divided by the number of ordinary shares outstanding.

Execute 
To complete a transaction or a trade.

Float 
The initial raising of capital for a company by public subscription.

Franked dividend 
See dividend imputation.

Fund manager 
A professional investment manager employed by an institution such as an insurance company, a unit trust or a superannuation fund.

Fundamental Analysis 
An attempt to determine the ‘fair value’ of a security compared with its current market price.

Gearing 
The proportion of debt capital in a company’s capital structure.  Also called leverage.

Good till cancelled (GTC) 
An order that remains in force until it is executed or cancelled.

Inside information 
Confidential information that is only available to a small number of people.  Trading on inside information is illegal.

Interim report 
A report on company operations for the first half of the financial year.

Leverage 
The process of increasing the funds available for investment by borrowing.

Limited liability (Ltd
When an investor’s liability is limited to the fully paid value of the shares held.

Liquid market 
A market in which an asset or security can be quickly and easily converted into cash.

Margin 
Borrowing by a client from their broker in part payment for the purchase of shares.

Market order 
An instruction given by a client to buy or sell immediately at the best market price currently available.

National Guarantee Fund 
A fund maintained by the ASX to protect the interests of investors if a stockbroker fails to complete a transaction.

Negative Gearing 
A tax reducing strategy in which the interest cost of borrowing exceeds the income earned from an investment.

Open order 
An order that is good until is has been executed or cancelled.

Ordinary shares 
Represent the proportional ownership in a company.

Over-bought 
The result of a recent price rise for which there is now an expected correction.

Over-sold 
The result of a recent price decline for which there is now an expected rally.

Penny shares 
Speculative low-priced shares – also called penny dreadfuls

Portfolio 
A selection of shares chosen according to an investor’s individual goals.

Price/earnings ratio (P/E)  
The current price of an ordinary share dividend by the earnings per share.

Primary market 
When shares are first issued and the funds constitute new capital to the firm.  See secondary market.

Prospectus  
A legal document issued by a company setting out the terms of its public issue of securities.

Proxy 
Written authorisation given by a shareholder to vote their shares at a shareholders meeting.

Rally 
A price rise after a period of declining prices (opposite of correction).

Resistance level 
A point at which an upward price movement is expected to slow down or stop.

Risk 
The chance that realised rate of return will be different from your expected rate of return.  See volatility.

Scrip 
Share certificates or fixed interest certificates that are evidence of ownership.

Seat 
An old term that indicates membership at an exchange.

SEATS 
Stock Exchange Automated Trading System,  a computer-based system that replaced floor trading on the ASX.

Secondary market 
When existing (as opposed to new) shares are traded, also called the aftermarket.  See primary market.

Securities 
A term that covers the paper certificates that are evidence of ownership of bonds, debentures, notes and shares.

Settlement 
Delivery of cash from the buyer and certificates from the seller to complete a transaction.

Share  
A unit of equity capital in a company.

Speculator 
An individual who accepts high risks in an attempt to earn quick profits.

Split 
Increasing a company’s shares outstanding by ‘splitting’ the par value of existing shares and distributing additional shares pro rata to shareholders.

Stag 
An investor who buys shares in a new issue with the intention of reselling them immediately at a profit.

Stamp duty 
A State tax on financial transactions including the purchase and sale of securities.

Stock 
Equity and debt securities.

Stockbroker 
A firm that buys and sells securities for clients.

Stock market 
A collective term that includes trading in all securities irrespective of whether they are traded on an exchange or over-the-counter.

Support level  A
Point at which a downward price movement is expected to slow down or stop.

Technical Analysis 
Attempting to predict future price movements from an analysis of past price movements.

Tick or Tic 
The minimum change in price quoted. 

Top (out) 
When the highest price will be reached and a reversal of the trend can be expected.

Trader 
An investor who actively buys and sells securities over a relatively short time.

Underwriter 
A financial institution that assists in the issue of new securities by agreeing to purchase any unsold securities thereby guaranteeing that they will be fully subscribed.

Unlisted shares 
Shares that trade in the over-the-counter market and not on the Stock Exchange.

Volume 
The number of shares traded.

Volatility 
Degree of variation in the price or returns of a security.  Measured by the annualised standard deviation. 

Whipsaw 
Frequent buy and sell signals within a narrow price range resulting in numerous small losses.

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