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Some Common Stock Market and Investment Terms
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Accumulation
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Accumulating
shares is the first stage of a bull market. While many investors are ignoring
the market, others start buying. |
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Acquisition
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When one company buys all the
stock in another company. |
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Active Market
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A market that
has high levels of trading and volume. |
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Advance/Decline Line
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Each day’s declining issues are
subtracted from that day’s advancing issues. The difference is added to
(subtracted from if negative) a running sum. Failure of this line to confirm
a new high is a sign of weakness. Failure of this line to confirm a new
low is a sign of strength. |
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Aggregate Market Value
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The dollar value
of all publicly held securities. |
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Analyst
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Someone who researches companies,
to determine which ones may be worth purchasing or selling. |
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Annual report
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An Annual Report
is a document required by Law and will include among other things, a balance
sheet showing assets and liabilities, a profit and loss account, names
of the directors, and an auditor’s endorsement that the figures are true. |
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Appreciation
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When the value of a stock or bond
increases. |
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Arbitrage
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The simultaneous
buying and selling of two or more different, but closely related securities,
in different markets to take advantage of price disparities. |
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Area Pattern
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When a stock’s upward or downward
trend has stalled a sideways movement in price follows. During this period
of consolidation some recognisable patterns occur. Some of these patterns
may have predictive value. Examples of these patterns are head & shoulders,
triangles, pennants, flags, wedges, and broadening formations. |
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Ask
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The asking price
is the price at which someone is prepared to sell a share. |
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Asset Allocation
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An investment approach, in which
you divide your client’s assets into a variety of categories. For example,
50 percent in stocks, 40 percent in bonds and 10 percent in cash. |
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Australian Securities Investment Commission
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The A.S.I.C.
regulates the Australian Share Industry. |
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Australian Stock Exchange
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The Australian market on which
shares are traded by brokers on behalf of clients. |
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Authorised Capital
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The Articles
of Association of a Company state the maximum number of shares that may
be issued. |
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Back office |
Location where client records are maintained and
processed. |
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Balance sheet |
The balance sheet is a part of the annual report
that shows the Companies’ assets, liabilities and capital. |
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Balanced Mutual Fund |
Mutual fund that invests in both stocks and bonds. |
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Bear |
One who believes prices of stock will fall. |
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Bear Trap |
A
bear trap is usually only seen after the event. It is a false signal that
indicates the rising trend of a stock has reversed when in fact it has
not. |
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Bear Market |
A
bear market is a prolonged period of time when overall prices are declining. |
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Beta |
Beta is a measurement of the degree of sensitivity
of a stock in relation to market movement. |
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Beta (Coefficient) |
The degree of risk which cannot be decreased by diversification.
A stock with a beta greater than 1 will rise and fall faster than the
overall market. A stock with a beta lower than 1 will rise and fall slower
than the overall market. |
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Bid |
The price a purchaser is prepared to pay for a stock. |
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Blue Chip shares |
Shares in companies that are perceived to be solid
investments, usually stocks in the top 50. |
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Board of Directors |
Group of people who are voted by the shareholders,
to oversee the strategic direction of a corporation. |
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Book value |
Shows the equity or net worth of a firm, which is
equal to its assets minus liabilities. |
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Boom |
A
market Boom is a period of time when most stocks rise strongly. |
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Bottom fishing |
When investors buy stocks that have fallen greatly
in value and try to "pick the bottom" of the market. |
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Breadth (Market) |
Market Breadth relates to the number of issues participating
in a market move. The move can be either up or down. If a rally develops
and the number of advancing issues is declining, the rally is suspect.
If a decline develops and the number of declining issues falls, the decline
becomes suspect. |
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Broker |
A
Firm that buys and sells shares and usually offers advice to clients (not
an individual). |
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Brokerage |
Fees charged by a broker when dealing for clients
(also commission). |
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Bull |
One who believes that share prices will rise. |
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Bull Market |
Generally a long period of time in which prices rise. |
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Bull Trap |
A
Bull Trap is a false signal that is generated when prices indicate that
a stock has reversed from a downward to an upward trend. This apparent
reversal proves to be false hence it is a "trap for the Bulls." |
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Call Option |
A
contract that gives the purchaser the right but not the obligation to
buy the underlying security at a specific price within a specific time
frame. |
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Capital gain |
When a client sells a stock, bond or mutual fund
at a higher price than he/she paid for it. |
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Capital loss |
When a client sells a stock, bond or mutual fund
at a lower price than he/she paid for it. |
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Capitalisation |
The current capitalisation of company is calculated
by multiplying the number of issued shares by the current share price. |
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Cash cow |
A
stable company that generates huge amounts of consistent cash flow. |
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Channel |
Used in charting, it allows the user to draw parallel
lines connecting the low points and the high points. It can be ascending
or descending. |
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Chartist |
A
person who practices technical analysis. |
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Chess |
Clearing House Electronic Sub-register System. The
Australian stock exchanges automated system, which makes share certificates
unnecessary. |
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Churning |
When a broker engages in excessive trading of a client’s
account. This is a forbidden practice in the brokerage industry. |
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Close |
The final price of a stock at the end of a trading
session. |
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Closely held Company |
A
Company that has few people who own large amounts of stock. |
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Common stock |
Many companies will raise money by issuing common
stock, which will then be traded on a stock exchange. In essence, this
common stock represents ownership in the company. |
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Computer analysis |
Most stock market programs generate buy and sell
signals on a stock. These computer generated signals are derived from
various mathematical calculations devised by various people since the
advent of computers. These signals include among many others, Stochastic,
RSI, momentum, MACD, Bollinger Bands, Moving Averages and Directional
Indicators. |
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Contrarian |
An
investor who does the opposite of what most investors do. For example,
if most people are selling Industrial stocks, then a contrarian will buy
Industrial stocks. |
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Convertible Security |
One security which is convertible into another. It
is generally used with convertible preferred stock and convertible bonds.
There is a specific rate at which the security can be converted. |
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Confirmation |
At
least two indicators or indexes corroborate a market turn or trend. |
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Congestion Area |
A
congestion area is a series of trading days in which there is no or little
progress in price. |
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Correction |
A
temporary fall in the stock market (usually a 10% drop). |
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Current Yield |
A
stock’s dividend divided by its stock price. For example, if a stock has
an annual dividend of $1 and a stock price of $10, then its current yield
is $1 divided by $10 or 10 percent. |
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Daily Range |
The difference between the high and low during one
trading day. |
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Default |
When a company or individual is unable to meet debt
payments. |
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Deflation |
A
general decline of prices in the national economy. |
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De-listing |
Taking a stock off an exchange because it does not
meet requirements. |
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Derivatives |
Newer products such as: futures, options, warrants
and lepos. |
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Devaluation |
When a country’s currency falls in value. |
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Dilution |
When a company issues new shares, this will lower
the percentage of ownership for current shareholders. |
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Direct public offering |
An
offering where shares are sold by the Company to investors through direct
marketing. This contrasts with an underwritten public offering sold by
registered representatives who work for securities firms in an underwriting
syndicate. |
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Discounting the news |
If
good or bad news comes out about a Company, then investors will immediately
react and discount (that is buy or sell) the information into the stock
price. |
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Disinflation |
A
slowing of the rate of inflation. |
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Diversification |
Spreading money into different investments so as
to help reduce the risk of loss. |
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Dividend |
A
portion of company profits paid to share holders. |
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Dog |
A
stock that does poorly. |
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Dollar-Cost averaging |
An
investment strategy in which a client invests a fixed amount of money
periodically (such as monthly or quarterly). |
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Drawdown |
A
drawdown is a reduction in account equity from trading losses. |
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Due diligence |
This is when an underwriter makes a reasonable investigation
of a Company, to see if they are ready to go public. The underwriter will
delve deeply into the financial statements of the company. |
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Dumping |
When many investors sell stocks. |
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Earnings per share |
EPS is a calculation derived by dividing a Companies’
net earnings after tax, by the number of shares on issue. (Usually expressed
as x cents per share) |
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Elliott Wave Theory |
Originally published by Ralph Nelson Elliott in 1939.
It is a pattern recognition theory that suggests that Stock Markets follow
a pattern of five waves up and three waves down to form a complete cycle.
Many technicians believe that this pattern can hold true for as short
a time period as one day. However it is generally used to measure long
periods of time in the market. |
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Exchange |
A
marketplace where customers trade stocks, bonds, and options through a
continual auction system. Brokers representing buyers and sellers compete
through bids/offers against one another to purchase/sell the shares of
a particular security at the best possible price. The pricing process
reflects the law of supply and demand, more buyers push the price upward,
while more sellers drive it down. |
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Ex-dividend |
The day when the dividend is subtracted from the
price of a stock is the day the Stock is said to "go ex dividend". The
ex-dividend date is the date on which this takes place. Investors who
own the stock are paid their dividend on that date. Investors who are
short the stock must pay the dividend on that date. |
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Fair Value |
Describes the worth of an options or futures contract.
When fair value falls below a predetermined value, traders sell the cash
index and buy futures. When fair value rises above a predetermined value,
traders buy the cash index and sell futures. |
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Fibonacci Ratio |
The relationship between two numbers in the Fibonacci
sequence. The sequence for the first three numbers is 0.618, 1.0, and
1.618. In general terms the Fibonacci series is 1, 1, 2, 3, 5, 8, 13,
21, 34, 55, 89, etc. |
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Fiduciary responsibility |
A
relationship that involves trust. For example, a broker has a fiduciary
responsibility for his or her client. |
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Flat market |
When the stock market is not moving much. |
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Float |
When a company offers shares to the public for the
first time. |
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Fully valued |
When a stock or a bond has reached its peak and is
poised for a fall. |
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Fundamental Analysis |
A
method of valuing stocks by considering financial data, such as cash flow,
earnings, sales, market share, debt levels, etc. |
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Fundamentalist |
One who studies the fundamentals of a stock in an
attempt to gauge the current and future value of that stock. |
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Gamma |
It
measures the amount the delta changes for a 1 point move in the underlying
security. |
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Going private |
When a group of investors (usually management) buys
all the stock in their company. |
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Good will |
The intangible assets of a company, such as reputation,
brand names, commitment to the community, etc. |
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Gross domestic product |
Known as GDP. This shows the value of a nation’s
goods and services. |
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Hedge |
Methods of protecting a client’s portfolio from a
falling market. |
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Hidden asset |
A
valuable asset (such as real estate, a patent, etc.) whose value is understated
on a company’s financial reports. |
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High flier |
A
stock that climbs quickly in a short period of time. |
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Historical Volatility |
The average statistical volatility of a stock over
18 months. |
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Holding company |
A
company that has controlling ownership in one or more other subsidiary
companies. |
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Hot issue |
This is a new issue that immediately sells higher
than the offering price. |
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Implied Volatility |
A
measurement of the volatility of an option. |
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Income investment |
This is an investment that pays mostly interest or dividends. These investments tend to be conservative. |
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Index |
An
index is a statistical calculation that measures the performance of a
group of stocks or bonds over time. That is, if the stocks or bonds in
the index – in general – increase in value, so will the index and vice
versa. |
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Index Option |
An
option who's underlying security is an index. |
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Inflation |
A
general rise in prices throughout the economy. |
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Inside Day |
A
day in which the total range of price is within the range of the previous
days price range. |
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Issued capital |
This is the amount of a companies authorised capital
which shareholders have purchased. |
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Initial Public Offering (IPO) |
When a corporation offers stock to the public for
the first time. |
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Inside information |
Material information that has not been disclosed
to the general public. It is illegal to act on this type of information. |
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Institutional investor |
An
organisation, which has much money, that invests in the stock and bond
markets. Examples of institutional investors: pensions, insurance companies,
and mutual funds. Much of the trading volume in stocks and bonds comes
from the transactions of institutional investors. |
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Issuer |
This is the company that issues new stock to the
public. |
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Lead underwriter |
In
many IPOs, there will be more than one underwriter to help sell the new
shares. However, there will be a managing underwriter, called the lead
underwriter. |
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Junk bonds |
Bonds that offer a high yield but are backed by companies
that usually have a higher probability of default. |
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Margin |
The minimum amount of money required to buy or sell
a security. The investor is using borrowed money. |
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Margin Call |
The demand by a broker to an investor to put up money
because his security(s) have declined in value. There are minimum amounts
of capital required by the exchanges or the broker. |
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Market top |
When the stock or bond market has reached its highest
level – and is thus ready for a fall. |
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Merger |
When two or more companies agree to combine their
operations and form a larger corporation. |
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Momentum |
See momentum in the section on Computer Analysis. |
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Moving Average |
See moving average in the section Computer Analysis. |
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Net income |
The profits of a corporation after taxes. |
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Net tangible assets |
Total assets excluding intangible assets (except
goodwill) less total liabilities. |
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New issue |
This is a company that has gone public recently. |
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Noise |
Fluctuations in the market that can confuse the interpretation
of market direction. |
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Negative Divergence |
When two or more indicators, indexes, or averages,
fail to show confirming trends. |
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Obligation |
A
debt owed to someone else. For example, a bond is an obligation. |
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Odd Lot |
A
block of stocks consisting of less than 100 shares. |
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Offering price |
This is the price at which a company will go public. |
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Options |
A
call option entitles the purchaser to buy shares in a company within a
fixed time frame at an agreed price. A put option entitles the purchaser
to sell shares in a company within a fixed time frame at an agreed price. |
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Out of favour |
A
stock that the investment community has a negative view. |
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Overbought |
Market prices that have risen too steeply and too
quickly. |
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Oversold |
Market prices that have declined too steeply and
too quickly. |
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Paper profit or paper loss |
When the value of a client’s stocks go up or down,
but he or she does not sell them. However, if the client did sell them,
then there would have been realised capital gains or losses. |
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Parent company |
A
company that controls and owns another company. |
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Penny dreadful |
Low priced highly speculative exploration stocks. |
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Portfolio |
The composition-stocks, bonds, mutual funds, etc. |
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Preferred stock |
Similar to common stock, but usually pays higher dividends. Also, preferred stockholders get their
dividends before common
stockholders. |
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Premium |
The price in excess of the intrinsic value of an
option. |
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Price earnings ratio |
This is the relationship of the current share price
to recent earnings. Simply divide the price of the share by the earnings
of the share. |
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Profit taking |
After a stock has increased in value, some investors
will take their gains by selling some of their stock. |
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Program Trading |
Trades based on signals from computer programs. Program
trading accounts for an increasingly larger portion of all trades throughout
the day. Additionally, these large trades may be hedged by an offsetting
position in index futures. |
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Prospectus |
An
official document approved the Australian Securities Investment Commission,
inviting investors to buy the issuing Companies’ shares. |
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Proxy |
Giving authorisation to someone else to vote common
stocks, such as at a Company’s shareholder meeting. |
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Quarter |
Equivalent to three months. |
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Quote |
The price of a stock or bond. |
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Rally |
When stocks undergo strong increases in value. |
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Random Walk |
A
theory that states people cannot, over the long-term, beat the market
averages. |
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Real rate of return |
Profit that is adjusted for inflation. |
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Recession |
When the economy’s Gross Domestic Product (which
measurers the total value of goods and services produced by the economy)
falls for two consecutive quarters. |
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Reorganisation |
When a company undergoes tremendous change, such
as layoffs, cost cutting, or mergers. |
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Resistance |
Price resistance is a price level at which a share
is continuously being sold. If prices are continuously being sold a one
particular price level, then a resistance line can be drawn at that level
(more information see the section on Technical Analysis). |
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Reversal |
There are several reversal patterns within the context
of technical analysis (more information see the section on Technical Analysis). |
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Return On Assets |
Net earnings of a company divided by its assets. |
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Return On Equity |
Net earnings of a company divided by its equity. |
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Secondary |
A
small company stock. |
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Secondary offering |
This is when an already public company issues more
stock to the public. |
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Sector |
An
industry, such as the White Goods or Retail. |
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Securities |
Stocks and bonds. |
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Selling Short |
Selling a security and then borrowing the security
with the intent of replacing that security at a lower price than it was
borrowed. The short trader is betting that the price of the security will
go down. |
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Shareholders |
The investors who own common stock in a company. |
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Sleeper |
A
stock that is selling cheaper than other stocks in a similar sector. |
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Slippage |
The difference between estimated and actual transaction
costs. Slippage is usually comprised of commissions and price differences
between the expected price and the actual price. |
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Share/Stock |
Buying a share gives an investor part ownership of
a company. |
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Split |
When a corporation issues more stock to its shareholders.
For example, if a corporation initiates a 2 for 1 stock split, this company
will issue two stocks for every stock a current shareholder owns. |
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Stag |
A
stag is one who purchases shares during a float and sells them as soon
as they are listed. An act known as "stagging the market" |
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Stop loss |
A
stop loss is an instruction given to your broker. This particular order
can be used to enter or exit the market at a pre-determined price level
and is designed to minimise losses. |
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Take a bath |
A
huge loss in a stock. |
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Technical analysis |
Technical analysis is the study of charts themselves.
The tools of a chartist are generally only the chart, a pencil and a ruler.
The technical analyst is looking for repetitive patters such as flags,
pennants, wedges, triangles, double tops and double bottoms to name a
few. |
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Technical analyst |
One who studies charts and practices technical analysis,
ignoring the fundamental aspects of the particular stock |
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Technical rally |
A
temporary rise during a bear market. |
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Thin market |
When volume of trading is low. |
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Tick |
A
change in price |
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Trader |
A
short term investor. |
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Trendline |
Charting analysis formation – see the Technical Analysis
section. |
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Trending Market |
Price moves in a steadily in one direction. |
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Undercapitalised company |
A
company that does not have sufficient cash to run properly. |
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Underlying stock |
The stock to be delivered in the event an option
is exercised. |
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Underwriter |
This is a securities firm that helps a company go
public. |
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Volatility |
The measurement of how much an underlying security
fluctuates over a period of time. |
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Warrant |
A
security that allows an investor to purchase a fixed number of shares
for a fixed price over a period of time. |
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Windfall |
When a person or corporation receives an unexpected
large amount of profits. |
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Yield |
Yield is calculated by dividing the dividend of a
share by current price and showing the return of investment. |
