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- On August 2, 2017
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- Futures Index Trading, IndexTrader Advanced, learn to trade, Stockmarket, Stockmarket for Beginners
It is important for students and beginning investors to have a solid understanding of even the most basic of stock markets terms. Below we have compiled an A-to-Z of stock market terms and basic stock market definitions.
Ask The lowest price at which someone is willing to sell the security.
Ask Size Ask size is the number of shares a seller is selling at a quoted ask price
Averaging Down Buying more of a security at a price that is lower than the price paid for the initial investment. The aim of averaging down is to reduce the average cost per unit of the investment.
Bear Market A market in which stock prices are falling.
Bid The highest price a buyer is willing to pay for a stock.
Bid Size Bid size is the number of shares a buyer is willing to purchase at a given price.
Blue Chip Stocks Stocks of leading and nationally known companies that offer a record of continuous dividend payments and other strong investment qualities.
Bull Market A market in which stock prices are rising.
Cash Dividend / Distribution A dividend/distribution that is paid in cash.
Close Price The price of the last board lot trade executed at the close of trading.
Commission The fee charged by an investment advisor or broker for buying or selling securities as an agent on behalf of a client.
Cum Dividend With dividend. The owner of shares purchased cum dividend is entitled to an upcoming already-declared dividend. The opposite of this is ex dividend.
Cum-Dividend/Distribution Date The trading day before the ex-dividend/distribution (ex-d) date. It is the last day on which the securities can be traded and on which the buyer is entitled to the dividend/distribution.
Cyclical Stock A stock of a company in an industry sector that is particularly sensitive to swings in economic conditions.
Defensive Stock A stock purchased from a company that has maintained a record of stable earnings and continuous dividend payments through periods of economic downturn.
Dividend The portion of the issuer’s equity paid directly to shareholders. It is generally paid on common or preferred shares. The issuer or its representative provides the amount, frequency (monthly, quarterly, semi-annually, or annually), payable date, and record date. The exchange that the issue is listed on sets the ex-dividend/distribution (ex-d) date for entitlement. An issuer is under no legal obligation to pay either preferred or common dividends.
Dividend Yield Equal to the indicated annual dividend rate per share divided by the security’s price. For example, if the indicated dividend rate is $1.00 and the closing price is $50.00, $1 divided by $50.00 equals 2%.
Equities Common and preferred stocks, which represent a share in the ownership of a company.
Equity Price The price per share traded.
Equity Value The total dollar value of volume traded on one side of the transaction for a specified period. It equals price multiplied by volume.
Equity Volume The total number of shares traded on one side of the transaction.
Ex Dividend The holder of shares purchased ex dividend is not entitled to an upcoming already-declared dividend, but is entitled to future dividends.
Ex-D Date Ex-dividend/distribution date. The date that the buyer of a stock is not entitled to the upcoming declared dividend/distribution, because the buyer will not be a holder of record. The ex-d date is two clearing days before the record date. The exchange that the issue is listed on sets the ex-d date.
Franked Dividends A dividend paid out of profits on which the company has already paid tax. The dividends have imputation credits attached, meaning the investor is entitled to a reduction in the amount of income tax that must be paid, depending on his or her marginal tax rate. If a company pays the full company tax rate, the dividends are fully franked, otherwise they are known as partly-franked dividends.
Growth Stock The shares of companies that have enjoyed better-than-average growth over recent years and are expected to continue their climb.
High Price The highest price at which a board lot trade on a security was executed during a trading session
Income Stock A security with a solid record of dividend payments and which offers a dividend yield higher than the average common stock.
Insider Trading There are two types of insider trading. The first type occurs when insiders trade in the stock of their company. Insiders must report these transactions to the appropriate securities commissions. The other type of insider trading is when anyone trades securities based on material information that is not public knowledge. This type of insider trading is illegal.
Limit Order An order to buy or sell stock at a specified price. The order can be executed only at the specified price or better. A limit order sets the maximum price the client is willing to pay as a buyer, and the minimum price they are willing to accept as a seller.
Liquidity This refers to how easily securities can be bought or sold in the market. A security is liquid when there are enough units outstanding for large transactions to occur without a substantial change in price. Liquidity is one of the most important characteristics of a good market. Liquidity also refers to how easily investors can convert their securities into cash and to a corporation’s cash position, which is how much the value of the corporation’s current assets exceeds current liabilities.
Long A term that refers to ownership of securities. For example, if you are long 100 shares of XYZ, this means that you own 100 shares of XYZ company.
Low Price The lowest price at which a board lot trade was executed during a period of time.
Margin Account A client account that uses credit from the investment dealer to buy a security. A client needs to deposit a margin amount with the balance advanced by the investment dealer against collateral such as investments. The investment dealer can make a margin call, which means the client must deposit more money or securities if the value of the account falls below a certain level. If the client does not meet the margin call, the dealer can sell the securities in the margin account at a possible loss to cover the balance owed. The investment dealer also charges the client interest on the money borrowed to buy the securities.
Market Order An order to buy or sell stock immediately at the best current price.
New Issuer Listing – IPO (Initial Public Offering) An IPO (initial public offering) is an issuer’s first offering of its securities made to the public in accordance with a prospectus. The offering is often made in conjunction with an issuer’s initial application for listing on an exchange.
Opening The market opens at 10.00am AEST each business day.
Penny Stock Low-priced speculative issues of stock selling at less than $1.00 a share.
Portfolio Holdings of securities by an individual or institution. A portfolio may include various types of securities representing different companies and industry sectors.
Pre-Opening Session A session from 7:00 a.m. to 10.00 a.m. (AEST) when orders can be entered into the Australian Stock Exchange systems. Tradable orders will be queued until after 10.00 a.m. when the market opens.
Quote The highest bid and lowest asking price for a security at a particular time.
Rally A brisk rise in the general price level of the market or price of a stock.
Short Selling Short selling is the sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security’s price will decline, enabling it to be bought back at a lower price to make a profit.
Speculator Someone prepared to accept calculated risks in the marketplace for attractive potential returns.
Spread The difference between the bid and the ask prices of a stock.
Stock Split A decision by the company’s board of directors to increase the number of shares that are outstanding by issuing more shares to current shareholders. For example, a two-for-one stock split involves the issuance of two new securities for every old security.
Stock Symbol Most ASX listed company’s codes have 3 characters. A good rule to remember is that a 3 character code typically indicates the ordinary shares in a company – where there is more or less than 3 characters, there is most likely something different from the ordinary shares of a company.
Tick Slang used for minimum spread. Depending on the stock price it could be a half-cent, one cent or five cents.
Unfranked Dividends Dividends distributed to investors on which no tax has been paid by the company. They are subject to tax at the recipients normal marginal rate.
Volatility A statistical measure of changes in price over a period of time.
Volume The total number of shares traded on one side of the transaction.
Yield This is the measure of the return on an investment and is shown as a percentage. A stock yield is calculated by dividing the annual dividend by the stock’s current market price. For example, a stock selling at $50 and with an annual dividend of $5 per share yields 10%. A bond yield is a more complicated calculation, involving annual interest payments, plus amortizing the difference between its current market price and par value over the life of the bond.