Originally published by Canstar Research
Before you dip your toe into the big wide world of investing, we’re big believers in knowing the basics. In this post, we’re sharing 38 terms that every Aussie investor should know, so you can start with the basics and continue to grow your knowledge as your investing journey continues. We’ve kept the definitions concise to allow you to have a broad overview and research in more depth any terms you’d like to become more familiar with. You can refer back to these terms at any point as a refresher
What is the share market?
The share market is an exchange that allows people to buy or sell shares and companies that issue shares. A share, sometimes called a stock or security, is a unit of ownership in a company. If you buy shares in a company, you own part or a ‘share’ of that company. This part ownership is sometimes referred to as having equity in that company. For a full overview of how to get started buying shares in Australia, check out this full summary.
What do share market terms mean?
As with most industries, there is a fair amount of industry-specific terms and jargon to wrap your head around that professionals and experts use when speaking about trading on the share market. Learning some of these terms will greatly benefit you as an investor, especially as you begin to learn more about how the share market works.
What should I know before I start investing?
From A to Z, these are the terms that you may come across as an investor, and some you may want to be across before placing your first order.
1. All ordinaries (All Ords)
The All Ords index comprises the weighted share prices of around 500 of the largest Australian companies. It was established by the ASX in January 1980 and is the predominant measure of the overall performance of the Australian share market. Companies are weighted according to their size in terms of market capitalisation (total market value of a company’s shares).
2. ASX code
The unique code used by the Australian Securities Exchange to identify listed companies.
3. Bear market
When share prices are generally falling.
4. Bid price
The price at which someone is prepared to buy shares.
5. Blue chip
Shares highly valued in a large company known for its ability to make profits in good times or in bad, and often with reduced risk.
6. Book value
The value of a security or asset as entered in a firm’s books (accounts).
Fee paid to a stockbroking firm for buying or selling of shares on behalf of a client.
8. Bull market
When share prices generally are rising.
9. Clearing House Electronic Sub-register System (CHESS)
Performs the settlement of share trades and provides an electronic sub-register for ownership of shares in ASX listed companies.
10. Conditional order
Instructions to monitor a particular stock on your behalf and, if the share price reaches your target, a buy or sell order can be automatically triggered.
11. Contract note
A written document confirming a transaction between two dealers or a broker and a client which details the costs, type and quantity of shares traded.
12. Delayed price
A price that is not the current live price for the share, but is delayed by a certain amount of time, usually around 20 minutes.
When a company is removed from the Official List of the stock exchange and its shares are no longer quoted.
A financial instrument that derives its value from that of an underlying instrument (such as shares, share price indices, fixed interest securities, commodities, currencies etc). Futures, exchange-traded options, contracts for difference and some warrants are types of derivatives.
Distribution of part of a company’s net profit to shareholders. Usually expressed as a number of cents per share.
16. Dynamic data
A service offered by online trading systems which allows you to view live market information without needing to click a refresh button.
Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company’s operating performance. Essentially, it’s a way to evaluate a company’s performance without having to factor in financing decisions, accounting decisions or tax environments.
18. FANG Stocks
An acronym for Facebook, Amazon, Netflix and Google (now Alphabet), four high performing technology stocks.
Initial raising of capital by public subscription to securities, such as shares offered on the share market for the first time.
20. Fundamental analysis
An overall examination of the financial position of a company, its industry sector, and the current economic environment.
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Futures are contracts to buy or sell a particular asset (or cash equivalent) on a specified future date.
22. HIN (Holder Identification Number)
Identifies you as the owner of your securities and should be stored securely.
23. Index (indices)
A measure of a change in value for a group of assets
24. Limit order
An instruction to a broker to buy or sell a security at a specified price or better.
25. Listed company
A company which has agreed to abide by ASX Listing Rules so that its shares can be bought and sold on ASX.
26. Live Price
The current price of a share.
27. Market depth
A snapshot of the bids and offers on a particular share. This can indicate the liquidity of share.
28. Market order
Order to a broker to buy or sell at the current market price at the time the order is given.
An option is a contract between two parties giving the taker (buyer) the right, but not the obligation, to buy or sell a pre-existing underlying asset at a particular price on or before a particular date.
30. P/E Effect
A situation in which a portfolio with a lower average P/E ratio has a higher return (when adjusted for risk) than a portfolio with a higher ratio.
31. Short selling
Short selling involves selling a financial instrument that the seller does not own, with the intent of later purchasing the financial instrument at a lower price.
32. Substantial shareholder
A person/company which holds more than 10% of a company’s voting rights.
Acquisition of a controlling interest in a company through the purchase of shares.
34. Technical analysis
Examines the actual history of trading and the price of a security or index, usually in the form of a chart.
35. Unlisted company
Any company that is not listed on a licensed stock exchange.
36. Write down
Reduce the book value of an asset to take into account depreciation or a fall in market price.
The percentage return paid on a stock in the form of dividends or the effective rate of interest paid on a bond or note.
Companies that continue to operate while they await a merger or closure, even though they are insolvent and bankrupt.
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