Online share trading glossary of terms
Please note that these are a general explanation of the meaning of terms used in relation to online share trading. Your financial institution may use different terms, and you should read the terms and conditions of your shareholdings carefully to understand all features, dividends and brokerage fees and charges that may apply to your portfolio.
All Ordinaries (All Ords): The All Ords index contains the weighted share prices of around 500 of the largest Australian companies, i.e. all the common or ‘ordinary’ shares. It is the oldest index of shares in Australia, established by the ASX at 500 points in January 1980, and it is the predominant measure of the overall performance of the Australian sharemarket. A company is weighted according to their size, as measured by the total market value of the company’s shares.
Asset: Something you own. In the context of online share trading, an asset usually refers to shares owned in a company.
ASX: Stands for Australian Securities Exchange. The Australian share market.
ASX code: The unique code used by the Australian Securities Exchange to identify each listed company on the share market.
Bear market: A time period when share prices are generally falling.
Bid: 1. The price at which someone is prepared to buy shares. 2. An offer made by an investor, a trader or a dealer to buy a security (shares). The bid will specify the price the buyer is willing to pay for the shares and the number of shares to be purchased.
Blue chip: Shares in a large, well-established company known for its sound financial ability to make a profit in both good times and bad. These shares are highly valued because of the reduced risk to investors in buying them.
Book value: The value of an asset as listed on the company’s balance sheet, meaning the cost of the asset less any depreciation.
Brokerage: Client fees paid to a stockbroking firm for them to buy or sell shares on your behalf.
Bull market: A time period when share prices generally are rising.
Caveat emptor: Latin for “let the buyer beware”. In financial situations, this phrase means that a buyer should be careful to examine all terms and conditions before signing any contract to purchase the product.
Clearing House Electronic Subregister System (CHESS): A computer system that performs the exchange of ownership of shares for money, known as settlement, for shares traded on the ASX. CHESS also provides an electronic register (‘subregister’) of who owns what shares across all ASX listed companies.
Conditional order: Instructions given by you to a broker to monitor a particular stock and automatically trigger a buy or sell order if the share price reaches your target.
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.
Delayed price: A price that is not the current live price for the share, but is delayed but a certain amount of time, usually around 10 to 15 minutes.
Delisted: When a company is removed from the Official List of the stock exchange and its shares are no longer listed for sale.
Derivative: A financial product that derives its value from an underlying variable asset such as shares, share price indices, fixed interest securities, commodities, and currencies. Some types of derivatives are futures, exchange-traded options, contracts for difference, and some warrants.
Dividend: The distribution of part of a company’s net profit to its shareholders. Usually expressed as a number of cents distributed per share owned.
Dynamic data: A data service offered by online trading systems that allows you to view live market information without needing to click a refresh button.
Float: The initial raising of capital by a company asking the public to subscribe to their securities. Shares offered on the share market for the first time are an example of a float.
Fundamental analysis: An overall examination of the financial position of a company, taking into account its industry sector and the current economic environment.
Futures: Futures are contracts to buy or sell a particular asset (or its equivalent value in cash) on a specified date in the future.
HIN (Holder Identification Number): A number that identifies you as the owner of your securities in the CHESS subregister. This number should be stored securely to prevent theft of your shares and identity fraud.
Limit order: An instruction from you to a broker to buy or sell shares at a specified price or better.
Listed company: A company that has agreed to abide by the ASX Listing Rules so that its shares can be bought and sold on the ASX share market.
Live Price: The current price of a share.
Margin loan: A loan that lets you borrow money to invest, using your shares or managed funds as a security guarantee for the loan. Margin loans are extremely risky and are not recommended, as they can cause people to fall into large amounts of debt. They would only ever be an acceptable choice for experienced investors who actively monitor and manage their share investments to prevent losses.
Market capitalisation: The total market value of a company’s shares. This is used as a unit of measurement to decide how large or small a company is.
Market depth: A measurement of the demand and supply of a particular share, or the liquidity of that share.
Market order: An order from you to a broker to buy or sell shares at the current market price immediately.
Merchant: Someone who sells goods or services to customers for payment.
Official list: The list of the names of all securities permitted to be registered and trading on ASX.
Ombudsman: If you have a dispute with your broker or financial institution and you haven’t been able to resolve it with them directly, you can contact the Financial Ombudsman Service of Australia (FOS). It is a free and independent service that resolves disputes with stockbrokers and other financial institutions. Anyone can call them on 1300 78 08 08.
Option: A contract between two parties, giving the ‘taker’ (the buyer) the right to buy or sell an underlying asset at a particular price on or before a particular date. As the name implies, the taker has a right but not an obligation to buy or sell.
Price-weighted index: A share market in which each share influences the index in proportion to its price-per-share. The value of the index is generated by averaging the prices of all stock in the index. Stocks with a higher price are given more weight and have greater influence over the performance of the index. An example of a price-weighted stock index is the Dow Jones Index.
RBA cash rate: The overnight interest rate that the Reserve Bank of Australia offers financial institutions to settle-up on inter-bank transactions.
Securities or a security: A financial product bought and sold in a stock market. Securities include shares, bonds, options, notes, and warrants. A security is usually negotiable and it is also fungible, meaning items of the same type are all the same and interchangeable. The company or entity that issues the security is known as the issuer.
Share market: Also known as the stock market or the equity market. The market in which shares of publicly held companies are issued and traded. The stock market is one of the most vital components of a free-market economy because companies get capital from investors in exchange for giving shares as a portion of ownership in the company.
Shareholder: Any person, company or institution that owns at least one share of a company’s stock. Shareholders are the owners of a company. Shareholders receive a portion of the profits if the company does well, in the form of dividends. However, if the company does poorly, the shareholder has effectively ‘lost’ money. Also known as a stockholder.
Shareholder register: A list of every current shareholder (the people who actively own shares in a company). Every listed company is required to keep their shareholder register updated on an ongoing basis. The register includes each person’s name, address and the number of shares they hold.
Short selling: Where someone sells a financial product that they do not own, with the intent of buying the product later at a lower price. Short selling was viewed as a contributing factor to the volatility of the world market during the GFC.
Soft market: A market that has more potential sellers than buyers. A soft market can describe the situation for an entire industry or a specific asset. Also known as a buyer’s market, because there is more supply than demand, so the purchaser holds most of the power in negotiating prices.
SRN (Security Reference Number): Numbers allocated by an issuer to identify each ‘issuer sponsored’ holder. This refers to owners of shares only registered on the company subregister rather than on the CHESS subregister. SRNs must be provided to your broker when buying or selling shares. The number begins with the letter ‘I’. Issuer sponsored holders are also allocated a HIN, but the SRN is more secure and is only shown on Issuer statements.
STP (straight through processing): An efficient way to electronically process transactions where the customer does not need to manually re-enter data or instructions previously provided. The transaction goes “straight through” the system and completes itself automatically. It includes different stages like trading, clearing and settlement. Also known as exception-based processing, because the transaction completes automatically unless the program detects an anomaly that requires a human’s attention to resolve.
Substantial shareholder: A person or company that holds more than 10% of a company’s voting rights through owning a large amount of the right type of shares.
Takeover: Acquiring a controlling interest in a company by purchasing the majority of its shares.
Technical analysis: Examining the actual history of the trading and price of a security or index.
Unlisted company: Any company not listed on a licensed stock exchange. Shares in unlisted companies cannot be bought and sold on the ASX.
Volatility: A measurement of the amount of fluctuation in the prices of shares.
Volume-weighted average price (VWAP): A trading benchmark calculated by adding up the total dollar amount of share trading transactions for the day and dividing by the total number of shares traded that day.
Write down: To reduce the ‘book value’ of an asset after taking into account the depreciation of the asset or a fall in the asset’s market price.