One of our goals at Australian Stock Report is to effectively communicate what can be complex financial issues in jargon free, easy to understand language.
In fulfilling this goal we will always endeavour to use the most user-friendly language that we can, but in a technical area like the stock market we are often compelled to adopt industry language.
In view of this, below is a glossary containing a brief explanation of some of the more common terms that we use in our reports:
Accumulate – In general, it means to increase the number of shares of a particular security over the near term, but not to liquidate other parts of the portfolio to buy a security that might skyrocket. A buy recommendation, but not an urgent buy.
AGM – Annual General Meeting.
Amortisation – The deduction of capital expenses over a specific period of time (usually over the asset’s life). Usually applied to intangible assets. Often found on company’s books after acquisition of another company where goodwill is being amortised. Whilst goodwill has a value at the outset of a purchase, it will generally be amortised as its value is intangible to the acquirer. Amortisation period for goodwill at least 10 years but generally 20 years.
Analyst – A professional who researches the value of assets. Analysts are highly trained in accounting and company valuation techniques. Analysts are employed by stock brokers and fund managers to produce research and buy, sell, and hold recommendations on companies and other financial instruments.
Annual Report – A company’s yearly statement of financial operations which contains a number of required sections by ASX listing rules. Sections generally include: Chairman’s Address, Income Statement, Balance Sheet, and Statement of Cash Flows.
Appreciation – The rise in value of an asset.
Arbitrage – The simultaneous purchase and sale of the same security in different markets to realise a guaranteed net profit across the simultaneous transactions.
Asset – An item which has inherent value. Assets include cash, accounts receivable, inventory, real estate, and securities.
Asset Allocation – The manner in which investors allocate their limited capital amongst the various financial classes. Financial classes generally include cash, fixed interest (bonds), property, and shares. An important consideration in asset allocation is risk versus reward, as some asset classes and more or less risky than others and produce higher or lower returns commensurate to the risk.
At best – An order instruction to a stockbroker requiring the order to be filled at whatever price is required to complete the order quantity.
At market – An order instruction to a stockbroker requiring the order to be filled at the current market price. That is, a seller accepts the price offered by the highest bidder or a buyer pays the price offered by the lowest seller.
At-the-Money – A condition in which the strike price of an option is equal to (or nearly equal to) the market price of the underlying security.
AUDUSD – The Australian dollar in terms of US dollars; the current exchange rate of our currency. The exchange rate is widely seen as a barometer of economic growth and stability compared to other countries in the world.
Australian Securities and Investment Commission (ASIC) – A government body responsible for the regulation of the Australian financial sector. ASIC is essentially the consumer watchdog for the financial services industry.
b – Abbreviation for ‘billion’.
Balance Sheet – Financial statement which details a company’s assets and liabilities. Assets minus liabilities equals net equity (worth).
Bear – An investor who believes that a stock or the market in general will depreciate in value.
Bear Market / Bearish – A Bear market is one that is going down. When we are Bearish we anticipate further falls in a stock or instrument.
Beta – A measure of how much a stock moves relative to the broader index within which it trades. Beta therefore measures a stock’s risk in relation to the overall market. A beta of less than 1.0 means that the stock’s price is likely to move less than the market in general; a beta greater than 1.0 means the stock is likely to move greater than the market in general. The upshot of this is that stocks with a high beta are advantageous to hold in a rising market. Stocks with a low beta are advantageous to hold in a falling market.
Bid – The price a buyer is willing to pay for a particular security.
Blue Chip Shares – Whilst there are no hard and fast rules as to what exactly is a blue chip share, generally considered to be a well-established, financially sound and stable company that has a very good reputation and pays steady dividends.
Board of Directors – A company’s Board is elected by shareholders to oversee the management of the company.
Bollinger Bands – An indicator that can be used to determine the upper and lower limits of a share price. It is calculated using the moving average and standard deviation. When the bands move towards each other it is often an early indicator of growing momentum in the share price movement (either up or down).
Bonds – A fixed- term debt obligation offered by governments or companies. Bonds pay investors a fixed interest rate with a promise to repay the principle at a specific future date.
Bonus issue – A free issue of new shares to existing shareholders.
Book Value Per Share – Net Worth (plus retained earnings) divided by the number of shares outstanding. Essentially book value per share is the amount of the company’s share price which is covered by net assets. This is theoretically what a shareholder will receive if a company were liquidated.
Breakout – Technical analysis term for a rise in a securities price above a resistance level (usually its previous high) or drop below a support level (usually its previous low).
Broker -An individual or company that charges a fee or commission for buying and selling securities.
Brokerage – Fees charged by stockbroker for acting on a client’s behalf in purchasing or selling.
Bull – A trader or investor who thinks a stock or the market in general will appreciate.
Bull Market / Bullish – A Bull market is one that is going up. When we are Bullish we anticipate further gains in a stock or instrument.
Business Cycle – The regular cycle of the broader economy between growth and contraction. There are four stages in the business cycle: expansion, growth, contraction and recession.
Buy – Pretty straight forward – this stock or instrument represents excellent value compared to the current price.
Buy And Hold – A long-term investing strategy in which an investor holds through the various market ups and downs.
Call option – A call option is a financial instrument derived from an underlying asset (i.e. a share) which gives the holder the right, but not the obligation, to buy a specified quantity of the underlying asset at a specific price (known as the ‘strike price’) on or before a specified date (known as the ‘expiry date’).
Capital – Financial assets which are to be used to generate income for a business. For companies this can also mean plant and equipment (physical assets which are not sold by the business but are used to generate income for the business).
Capital Appreciation – A rise in the market value of an asset.
Capital Asset – All of a company’s tangible property, including securities, real estate and other property.
Capital Gain – Realised increase in the value of an asset.
Capital Gains Tax – Government impost applied to a capital gain. Presently represents is one-half of the capital gain taxed at the asset holder’s marginal tax rate.
Capital Loss – Realised decrease in the value of an asset.
Capitalisation -The net value of a company’s outstanding shares, long-term debt and retained earnings.
Cash Flow – Revenue from financing, operations (day to day activity of the company), or investing.
Channel – Two lines describing a series of tops and a series of bottoms which define the range of a security’s price extremes over a period of time.
CHESS (Clearing House Electronic Sub-Register System) – The Australian Stock Exchange’s computerised share ownership system.
Close – The time of cessation of trading on an exchange.
Close Out – To exit an existing (open) position.
Closed Position – A position which has been completely closed (exited).
Closely Held Shares – Shares held by large investors or company insiders. Generally shares which aren’t likely to be readily sold in the market.
Closing price – The final price of a share at the conclusion of trading on the exchange.
Commission – Fees paid to acquire or dispose of securities.
Confirmation – Generally a broking term, written acknowledgment of a transaction by a broker.
Consensus Rating – This is the average of what the brokers/analysts are suggesting you do with the respective stock. Ratings vary between different analysts, and a ‘Marketperform’ may be another’s ‘Hold’. We use a ranking system for all of the individual ratings for a stock to determine an average or ‘Consensus’ rating.
Consensus Target – Generally this is the price expected to be reached some time in the next 12 months. We take an average of all of the suggested target prices to determine a ‘Consensus’ target.
Contributing shares – A class of shares which retain a continuing financial obligation.
Corner A Market – To acquire so much of an outstanding security that there is no more supply in the market. Prices would be expected to rise sharply in a cornered market.
Cum-dividend – The company’s shares are trading prior to the cut-off date (the ex-dividend date) for determining entitlement to being paid a dividend. Investors who buy shares cum dividend will be entitled to receive the dividend.
Current Assets – Shorter term, liquid assets such as cash, accounts receivable, inventory, marketable securities, prepaid expenses and other assets. Generally can be easily converted to cash within one year.
Current Liabilities – Short term obligations to supply a financial assets such as interest, accounts payable, short-term loans, expenses incurred but unpaid and other debts. Durations of less than one year.
Current Yield – The average annual rate of return received from an investment, based on income received during a year divided by the security’s market price.
Cyclical Industry – An industry whose financial performance closely matches the business cycle. Includes consumption dependant industries such as manufacturers of durable goods, and discretionary retail.
Day Order – An order to transact in securities placed with a broker which stipulates that the transaction will be cancelled at the close of trading on the day it was placed if not filled in the corresponding period.
Debt Financing – The use of interest bearing obligations to finance a company’s ongoing operations. A promise to repay borrowed principle and regular interest payments. Debt financing is an alternative to issuing more shares to raise capital.
Debt Service – The repayment of interest and principal of a debt.
Debt/Equity Ratio – A measure of a company’s financial obligations compared to the net assets it has available to service those obligations. Calculated by dividing long term debt by shareholders’ equity. A higher debt/equity ratio implies an aggressive financing strategy. Greater debt obviously results in additional interest expense. However, if the company can earn a return on the borrowed funds greater than the cost of borrowing then a high debt/equity ratio isn’t necessarily a bad thing.
Depreciation – An regular charge taken by a company against its profits reduce the value of a long-term tangible asset. Reflects the fact that assets which were reported at full value on purchase will degrade and not be worth this value when the time comes to replace the asset through sale or scrap.
Derivative – A security that’s price is derived from that of another security. Includes options, warrants, futures and CFDs.
Devaluation – Generally referring to a fall in the value of one currency versus another currency.
Dilution – Dilution is the effect on a company’s earnings per share caused by the conversion of convertible securities or the issuance of additional shares. Dilution reduces earnings per share by increasing the number of shares potentially outstanding.
Divergence – Is when the trend of a stock price does not match the trend of an indicator. I.e. if the share price is going up but the indicators are trending down we have divergence. Positive divergences are Bullish for a stock – where the indicator is trending higher while the share price may be falling or steady. Negative divergences are Bearish – where the indicator is trending lower while the share price may be rising or steady.
Diversification – The process of mixing a variety of different investments, types of industries, categories of risk or companies in order to reduce the risk in a portfolio.
Dividend reinvestment plan (DRP) – The automatic reinvestment of dividends into acquiring more shares in the company paying the dividend often offered at a discounted price. DRPs can reduce the cost of funding for a company but dilutes existing shareholders.
Dividend – A cash payment of capital to shareholders out of a company’s profits or retained earnings. Dividends are generally paid annually (annual dividend) or bi-annually or quarterly (interim dividends). From time to time a company may pay a ‘special dividend’ which is a non regular dividend payed out of retained earnings rather than present period’s profits.
Dividend Yield – The rate of return or a share with respect to dividend payments.
Dollar Cost Averaging – An investment technique where investors buy a fixed dollar amount of a particular investment, regardless of the share price. When the share price falls, more shares are purchased, when the share price rises, fewer shares are purchased.
Dow Jones Industrial Average – The main barometer of US share market activity. It is made up of 30 of the largest stocks that are traded on the New York Stock Exchange, and includes stocks such as IBM, Intel, Microsoft, Johnson and Johnson, and McDonalds. Movements on the Dow often affect our market, as it is widely seen as the most watched barometer for the health of equities in the world.
Downgrade – The broker has reviewed the stock in question, and finds reason to lower its rating on the stock. This does not always mean the stock is a sell, it may have been downgraded from a ‘Buy’ to a ‘Hold’, but it plays down the prospects for the stock in any case.
Downtrend – A sequence of lower lows and lower highs. Trends can be viewed within virtually any timeframe be it an intra-day, 1-minute chart or a quarterly chart.
Due Diligence – The process of disclosure to investors of all material information pertinent to an issue.
Earnings – Revenues minus expenses minus depreciation, amortisation and taxes.
Earnings per share (EPS) – Earnings divided by the total number of shares outstanding.
EGM – Extraordinary General Meeting.
EMA – An exponential moving average (EMA) is similar to a regular moving average in that it averages or smooths a financial instrument’s price over a specified time period in order to spot pricing trends by flattening out large fluctuations.
The key difference however, is that an exponential moving average attributes greater weight to the more recent price data and less to older price data, whereas a regular moving average does not.
Moving and exponential moving averages are amongst the most common indicators used by technical analysts.
An EMA is a trend following indicator. For the mathematically minded out there, the indicator is calculated like so:
EMA = Price(t) * k + EMA(y) * (1 – k)
t = today, y = yesterday, N = number of days in EMA, k = 2/(N+1)
Equity – The value of the funds contributed by the owners (the shareholders) plus the retained earnings (or losses). The balance sheet may list Shareholders’ Equity.
Equity Financing – The raising of capital from selling more shares in the company.
Exchange – An exchange is a market where securities are traded.
Ex-dividend – Company has already paid a dividend for previous reporting period.
Ex-dividend date – Date on which a company will trade on the exchange without the entitlement to the most recently declared dividend. Investors who purchase shares in the company on or after this date will not be entitled to the dividend. Likewise, investors who do purchase shares in the company before this date will be entitled to the dividend.
Execution – The completion of a buy or sell order.
Exp – Abbreviation for ‘expected figure’. This figure is the consensus figure from a number of analysts polled. When referring to reporting dates, this is an expected date only. We will remove ‘(exp)’ when these dates are confirmed.
ff – Abbreviation for ‘fully franked dividend’
Fibonacci Numbers – A set of numbers or percentages that occur in many natural and manmade events. Fibonacci numbers can be used to set up side or down side targets and the key levels of 38.2%, 50% and 61.8% are often support / resistance lines. Changes in trends very often correspond with Fibonacci numbers.
Fill – The price at which an order is executed. Gap: A significant price movement of a security between two trading periods, such that there is no overlap in the trading price ranges for the two periods.
Float – The initial public listing of a company that has previously been privately owned, or owned by the government.
Franked dividends – Dividends paid from earnings which have already had tax applied by the company.
Franking Credit – Credit accompanying those dividend payments for which company tax has been deducted. Australian resident taxpayers will receive a credit for the franked amount in lieu of any remaining payment to be made based upon their marginal tax rate. The company tax rate is currently 30%.
FTSE – The main barometer of share market activity in the United Kingdom. Our major resource stocks BHP Billiton (BHP) and Rio Tinto (RIO) also trade on the FTSE and their fortunes here are often influenced by movements on the UK market. Other Australian stocks that trade in the UK include Brambles Industries (BIL) and National Australia Bank (NAB).
Fully Franked – A dividend for which the company has paid tax on all the profits being distributed as dividends.
Fundamental Analysis – A method of evaluating stocks based on fundamental factors, such as earnings, future growth, return on equity, profit margins, and so on, to determine a company’s underlying value and potential for future growth.
Futures – A derivative security which allows the purchaser to take delivery of a specified asset at a specified future date (expiry date). The seller of a future must deliver the asset on the expiry date.
Go Long – When a trader thinks the stock is going up they will buy or ‘go long’
Go Short – When a trader thinks stock is going down they will short sell or ‘go short’.
Gold, Copper, Oil ($USD) – These are major commodities that affect our market through our resources sector. Australia is one of the major exporters of these commodities globally, and their fortunes have a direct impact on our dollar and share market.
Good ‘Til Cancelled – An order placed with a broker to buy or sell a security which is valid until the client cancels it.
Growth Rates -The compounded annualised rate of growth of a company’s revenues, earnings, dividends or another figure.
Growth stocks – Companies who are growing their earnings at a rapid pace. Generally are those stocks whose business are exposed to fast growing sectors of the economy and global economy. Expected to return consistent capital growth to investors rather than pay a high and steady dividend yield.
Head & Shoulders – A technical analysis price pattern which resembles a person’s head and shoulders. A high in the price is made, followed by a higher high and then a subsequent high which is lower than the second one. This pattern is generally considered to be a bearish indicator.
Hold – Also equivalent to ‘Marketperform’ or ‘Neutral’, this stock is expected to perform in line with the overall market. On average as the market generally rises, these stocks should do the same when taking a longer term view.
Income Statement – A financial statement required to be published in the company’s financial reports which summarises revenues and expenses in a specific period. Previously called a profit and loss statement or a ‘P & L’.
Industrial stocks – Companies generally involved in the manufacturing and services sectors.
Industry – The common category used to describes the company’s primary business activity. Similar companies are lumped into industries for comparison.
Initial Stop – As a percentage, it is the amount of the position that is prepared to be lost should the position not move in the anticipated direction. Also, it is the distance from the entry price to the initial stop loss price. This price is determined on the premise that should the security trade to it, the conditions upon which the entry decision was based would no longer exist.
Insiders – Anyone who is privy to confidential company information not yet released to the public. Usually includes company employees such as directors.
Insider Information – Information about a company’s activities which has not yet been disclosed to the public. It is illegal for anyone with access to inside information to transact based upon it.
Insider Trading – Illegal trading based upon inside information.
In-the-Money – Situation in which an option’s strike price is below the current market price of the underlying share (for a call option) or above the current market price of the underlying share (for a put option). Such an option has intrinsic value.
Inventory – Includes raw materials required for the manufacture for a saleable product, intermediate (unfinished) product, and saleable product held in stock.
Inventory Turnover – The ratio of annual sales to inventory. Low turnover may indicate excess stock or poor sales.
Leverage – The use of borrowings to increase the return of an investment.
Liability – An obligation to repay a debt.
Limit Order – A type of order placed with a broker to transact in a security at a specified price.
Liquidity – The ease and certainty with which an asset can be converted into cash.
Listed company – A company whose shares are traded on an exchange
Long – Or to ‘go long’ involves the purchase of an asset with the expectation that the price of the asset will rise.
Long Term Assets – The value of a company’s property, equipment and other capital assets, less depreciation. These are usually recorded ‘at cost’ and so do not necessarily reflect the market value of the assets.
Long Term Debt – Obligations to repay borrowed capital and to pay associated interest charges which have a duration of greater than one year.
Long Term Liabilities – A company’s legal debts or obligations which arise during the course of normal business. Can include obligations to supply goods and services, liabilities for leases, bond repayments and other items due in more than one year.
Long/Long Position – Signifies the ownership of a stock. If you buy a stock in the expectation that the price will increase, you are taking a ‘long position’.
m – Abbreviation for ‘million’.
MACD – (Moving Average Convergence / Divergence) – A variation on the moving average, this indicator is reactive to share price (it is reactive rather than being a leading indicator). MACD is calculated by subtracting a 26 day moving average from a 12 day moving average. When the indicator begins to move up it is usually a time to buy, and when it moves down it’s a good time to sell.
Margin – A minimum deposit required from an investor by a margin provider to enter into a leveraged transaction. The balance of the purchase price is effectively loaned to the investor to complete the purchase.
Margin Account – A trading account where an investor can draw down on margin to invest in securities. The shares themselves are used as security against the loan. Should the value of the securities fall below the initial margin, the investor will be required to deposit more cash to bring the margin back up to the required rate (a margin call) or sell a portion of the stock to once again fall within the margin requirements.
Margin Call – The demand that a customer deposit cash into a margin account.
Market Capitalisation - The combined value of all of the company’s outstanding shares. Calculated by multiplying the number of shares outstanding by the prevailing share price.
Market Depth screen – The market depth screen is a breakdown of individual, pending transactions for each price that a stock trades at. For example, we can look at a stock and see how many individual orders are waiting to be filled at certain prices – when the bid (buyer) matches the offer (seller) a transaction is made. We can use this screen to gauge how keen the buyers are to purchase and how keen the sellers are to offload their stocks at different prices. As stated earlier, prices go up when there are more buyers than sellers etc, etc. So if you see a trend of many buyers moving in on a stock and few sellers it’s time to go long.
Market Value – The current price for a security in the market.
Merger – The merging of two or more companies business operations to from a single company. Mergers generally involve a swapping of one company’s shares for another. This differs from a takeover where an acquirer offers cash to acquire all of another company’s outstanding shares.
Momentum – When a stock price shows continued progress in one direction.
Moving Average – A rolling calculation of the average of a securities prices over a specified timeframe. The longer the time period specified the ‘smoother’ the line will become as short-term price fluctuations will become less significant. Moving average is calculated by adding all prices over the specified period divided by the same period or more simply, add every day’s closing price for 20 days and divide this number by 20 (or whatever number you have specified for the period).
NASDAQ – The main barometer of technology stocks in the US (and effectively the world). It includes stocks such at Apple Computer, Yahoo! and Google.
Net Asset Value Per Share – The value of a company’s net tangible assets divided by the number of shares on issue.
Net Income (NPAT) – Revenue minus expenses, depreciation, interest, taxes and other expenses.
Nikkei – The main barometer of share market activity in Japan. As Japan is one of Australia’s major trading partners, being a major consumer of our raw materials. For this reason, the health of the Japanese market does have an influence on our market.
On open – An order to transact the order in the opening market.
Open – The commencement of trading on an exchange.
Open Position – A transaction which has been entered but not exited.
Operating Expenses – The costs associated with the day to day running of a company’s business operations.
Operating Income – The revenue derived from the day to day running of a company’s business.
Ordinary Shares – Shares which have no further payment required for full ownership. Also known as ‘common stock’ or ‘fully paid ordinary shares’. Holders have the right to share in the equity of a company, its profits and to vote on important issues affecting the company.
Out-of-the-money – Indicates that the option has no intrinsic value. In the case of a call option, when the price of the security is below the strike price, or in the case of a put option, when the price of the security is above the strike price.
Outperform – This stock is expected to perform better than the overall market for the next 12 months or so. No indication is given on what the overall market is expected to do however, so not as strong as a straight out buy, but still very positive.
Partially Franked – A dividend for which the company has paid tax on part of the profits being distributed as dividends.
PCP – Previous corresponding period.
pf – Abbreviation for ‘partially franked dividend’.
Portfolio – A person’s investment holdings, representing several different investment options.
Position – Typically refers to an open transaction. If an investor has previously purchased, then they have an open ‘long position’. If an investor has originally sold, then they have an open ‘short position’.
Preference Shares – A type of equity ownership which entitles holders to be paid a stated dividend. This dividend is paid in advance of any dividends which is to be paid to ordinary shareholders. Preference shares return a fixed dividend yield. Preference shares usually do not have voting rights.
Price to Earnings Ratio (PER) – A measure of how much the market is willing to pay for a share of the company’s earnings. The PER is a financial performance ratio which divides the earnings per share into the company’s share price. The higher the PER, the more times the greater the price is compared to EPS. This is generally considered to render the share more expensive than a company who has a lower PER. PERs are best used to compare companies within the same industry.
Profit Margin – NPAT divided by revenues, displayed as a percentage. Used to compare the profitability of stocks within industries. A higher profit margin indicates a more efficient company – i.e. one who is minimising expenses.
Program Trading – Computerised trading used primarily by institutional investors, typically for large volume trades, where orders from the trader’s computer are entered directly into the market’s computer system and executed automatically.
Prospectus – A formal written document which discloses the terms of an initial public offering of a company. The prospectus outlines the benefits and risks of investing the company and information regarding expected financial performance.
Proxy – A formal document which authorises another shareholder to act on a shareholder’s behalf. Generally, a shareholder will give management proxy over their voting rights.
Public Companies – Companies meets the minimum requirements under the Corporations Act and for which any member of the public could be reasonably expected to be able to purchase shares in the company from the existing owners. Any companies listed on the stock exchange, thereby enabling them to be publicly owned.
Publicly Listed Companies – As above, but whose shares are listed on an exchange.
Put option – A put option is a financial instrument derived from an underlying asset (i.e. a share) which gives the holder the right, but not the obligation, to sell a specified quantity of the underlying asset at a specific price (known as the ‘strike price’) on or before a specified date (known as the ‘expiry date’).
Qtr – Abbreviation of ‘quarter’ (1st Qtr Jul-Sep, 2nd Qtr: Oct-Dec, 3rd Qtr: Jan-Mar, 4th Qtr: Apr-Jun).
Quote – The current market price for a company, usually including the last traded price, and the bid-offer spread.
RBA – Reserve Bank of Australia.
Recession – A period of general economic contraction. Usually defined in a practical sense as two consecutive quarters of negative economic growth as measured by gross domestic product (GDP).
Reduce – Worse than an ‘Underperform’, as an actual action is implied in this recommendation. Here it would be prudent to sell some of our holdings in this stock. This may be to either take profits on a stock that has had a stellar run, or limit exposure to a struggling stock that is likely to fall in the near term. There is better value in the stock at lower prices.
Resistance – In technical analysis, resistance occurs when a share on an upward trend has difficulty moving beyond a certain price level.
Resource Stocks – Companies involved in the mining and energy sectors.
Retained Earnings – Earnings not paid out as dividends. Retained earnings can be used to reduce debt or reinvest back into the business.
Retracement – A move counter to trend currently in place. If a stock is in an uptrend and has made a reversal lower, we may note key retracements back down. If a stock is in a downtrend and has made a reversal higher, we may note key retracements back up.
Return – The yield of a security. Income derived from owning a security. The profit or loss derived from a transaction.
Return On Assets – Earnings divided by its total assets, displayed as a percentage. Represents how effective a company is in generating income from its assets.
Return On Equity – Earnings divided by book value, displayed as a percentage. It is a measure of a company’s profitability.
Rights issue – An issue of new shares to existing shareholders who have the right, but not the obligation, to purchase new shares at the preset price. Rights can be tradable on the exchange. If rights are not taken up (exercised) then they lapse.
Risk – Risk is basically the chance of a loss. The chance of a loss is generally accepted to increase with the volatility of the share price of a company. Volatility can be as a result of company performance, the amount of information flow out of a company, economic influences, and broader market influences. Generally, the less volatile a company’s price is, the less risky it is considered. Of course risk is generally commensurate with reward.
RSI – Relative Strength Index – A momentum indicator that compares the days when a stock finishes high to when it finishes low. When using the RSI the possible grading is between 0 and 100, a score over 70 is generally considered overbought and it is therefore time to sell, and a score below 30 is considered oversold and is a good opportunity to buy. In established Bull and Bear markets these figures can be stretched to 80 & 20. Usually we will use 14 days as the timeframe.
S&P ASX 200 (XJO) - The main barometer of Australian share market activity. It is made up of the 200 largest stocks by market capitalization traded on the Australian Stock Exchange, and includes the 30 stocks we track on a day to day basis in the two right most columns.
SEATS (Stock Exchange Automated Trading System) – The Australian Stock Exchange’s computer trading system where brokers enter in all of their desired transactions.
Security – A document issued by a party acceptable to market participants, offering evidence of ownership of an asset whereby possession of the document signifies ownership. Transfer of ownership requires the presentation or handing over of the security. More generally the term is applied to all shares, debentures, notes, bills, government and semi-government bonds, their derivatives (but not futures) and offered on primary or secondary markets.
Sell – Pretty straight forward again, exit this stock as its prospects in the near term do not look good. This may extend to the longer term, and it is best not to own this stock as its price greatly overstates its value.
Settlement Date – The date by which a transaction must be settled, that is, when the asset is transferred to the new owner and payment is transferred to the seller. For Australian shares, the settlement date is typically three business days after the transaction (T+3).
Share – Equity in a company.
Short Sell – A trading technique used during downtrends. In essence a trader will sell a stock that they do not own with the promise that they will purchase the same stock at a later date (hopefully) at a lower price. The difference between these two prices is the profit.
Short/Short Position – Traders take a short position when they expect the price of a given security to fall. This is done by borrowing the security and selling it in anticipation of profiting by being able to buy the security back at a lower price in order to repay the security lender. Not all stocks are authorised as ‘shortable’ and the lending facility is generally arranged by a stockbroker. Not all stockbrokers offer the short selling facility so please check with your stockbroker.
Sideways – In technical analysis, when a share trades within a ‘Channel’ running parallel to the X axis for a period of time.
Spread -The difference in price between where the buyers in a market are prepared to purchase a security, and where the sellers are willing to sell securities.
Stamp duty – A government tax on transactions of assets.
Stochastic Oscillator – A technical indicator that compares where a share price closed against the range that it traded in over a specified period. During uptrends, the prices tend to close at or near their highs and conversely during downtrends the prices tend to close at or near their lows. We tend to use 15 and 5 as the timeframes for the long-term and short-term periods.
Stock Split – A proportional increase in a company’s outstanding shares. After the split, the market value of the shares remains the same, though the number of shares held by each shareholder is proportionately increased.
Stock Symbol (code, ticker code) – A unique series of letters (and on some exchanges numbers) assigned to identify a security on an exchange. In Australia, all stock symbols consist of three letters, e.g. BSL (Bluescope Steel Ltd).
Stockbroker – A person or organisation who is registered with the exchange to act as an agent for the public to transacts in shares on the exchange.
On Stop – An order instruction to a stockbroker where an order is placed at market only when the security trades at the specified ‘stop’ price. The specified ‘stop’ may be above or below the current market.
Stop Loss – An order instruction to a stockbroker where an order is placed at market only when the security trades at the specified ‘stop loss’ price. Not all stockbrokers will place stop loss orders. Placing both an order and a stop loss order is generally treated by stockbrokers as being two orders; this may impact on brokerage and other charges.
Support – In technical analysis, support occurs when a share on a downward trend has difficulty moving below a certain price level.
T+3 – The date by which a transaction must be settled, that is, when the asset is transferred to the new owner and payment is transferred to the seller. For Australian shares, the settlement date is typically three business days after the transaction.
Takeover – The acquisition of one company by another. Can be ‘hostile’ where company being acquired is not willing to participate in the takeover, or friendly where company being acquired is willing to participate in the takeover.
Technical Analysis – The study of a company’s price action and volume over time.
Time frame – The approximate amount of time that we expect to be in the suggested share. The timeframe will depend on whether we are investing, trading, or using derivative instruments. The ‘Guide for this Page’ on the Share Suggestion Page/Watchlist will have more details on just how long the time frames are.
Trade – A transaction involving either the purchase or sale of a security.
Trading Range – The high price achieved by a security on an exchange for a specific trading session minus the low price.
uf – Abbreviation of ‘unfranked dividend’
Underperform – These stocks are not expected to perform as well as the overall market over the next 12 months or so. This does not necessarily mean the stock is likely to fall – the market could rise 10% and this stock may only rise 1%, but it has underperformed the market. Obviously we do not want to have stocks that underperform the market, so we would prefer not to hold such stocks.
Unfranked – A dividend for which the company has not yet paid tax on the profits being distributed as dividends.
Upgrade- The broker has reviewed the stock in question, and finds reason to raise its rating on the stock. This does not always mean the stock is a buy, it may have been upgraded from a ‘Sell’ to a ‘Hold’, but at least it is a step in the right direction
Uptrend – A sequence of higher highs and higher lows.
Volatility – the amount of movement normally associated with a company’s share price.
Volume – Is quite simply the amount of shares that changed hands during any particular day. As simple as it is, volume is one of the most important pieces of information that a trader can use. With this information it is possible to get a very good idea of market sentiment. Prices go up when there are more buyers than sellers and go down when the opposite occurs. Looking a market depth screens (see above) can give a trader useful insight into the overall view that the market has on a stock.
Warrant – Similar to an option, a warrant is a security which entitles the holder to either purchase or sell a specific amount of stock at a specific time in the future at a specific price.
Yield – Rate of financial return, usually over one year.