General Stock Market Definitions
All Ordinaries: This measure the level of share prices at any given time for a majority sample of companies listed on the ASX to determine the overall performance of the share market. This index covers over 300 companies which account for about 90% of the market capitalization and turnover on the ASX ASIC: abbreviation for the Australian Securities and Investments Commission. This is a government body responsible under the Corporations Law for regulating companies. It regulates the issue and sale of shares and unit trusts as well as company borrowings and investment advisors. At market: this is a type of order by an investor to buy or sell shares at the market price at the time the order is given, i.e. there is no minimum or maximum price set ASX: Australian Stock Exchange Bear Market: a bear market occurs when share prices are falling; there is more supply than demand Blue Chips: shares in leading companies that are considered to be high quality Blue Sky zone: this is where a particular stock reaches the highest price in its history Bonds: a debt investment with which the investor loans money to an entity (company or government) that borrows the funds for a defined period of time at a specified interest rate Boom: a period when share prices continue to rise in value Broker: also stockbroker, a person that buys or sells stock for clients Full service broker: A broker that provides a large variety of services to its clients, including research and advice, retirement planning, tax tips, and much more. Of course, this all comes at a price, as commissions at full-service brokerages are much higher than those at discount brokers Discount broker: A stockbroker who carries out buy and sell orders at a reduced commission, compared to a full-service broker, but provides no investment advice Internet Trading: You place your trades yourself using an electronic trading platform Brokerage: refers to the fee charged by a stockbroker for buying or selling stock on behalf of the client Bull Market: a bull market occurs when share prices are on the rise; there is more demand than supply
Call Option: A call Option is an agreement that gives an investor the right (but not the
obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period. It may help you to remember that a call option gives you the right to "call in" (buy) an asset. You profit on a call when the underlying asset increases in price.
CFD's: Contracts for Differences
CHESS: CHESS stands for Clearing House Electronic Sub Register System. The ASX is now fully automated and all records are kept electronically through CHESS, rather than on paper Commodities: that which affords convenience, advantage or profit, especially in commerce, including everything movable that is bought and sold i.e. goods, wares, merchandise, produce of land and manufacturers etc. Correction: a price decline after a period of rising prices. The opposite of a ‘rally’ Day Trader: someone who buys and sells stock in the same day Delta: measures the relationship and sensitivity between the stock price and the option price in regards to increase and decrease in price Diversification: spreading ones investments over a variety of investment categories, in order to reduce risks Dividend: these are part of the company profits which are distributed to shareholders. Usually they are expressed a number of cents per share Dow Jones Index: the full name is the Dow Jones Industrial Average. It monitors only 30 American blue chip stock. This index is not as comprehensive as the Standard and Poors (S & P) indices which covers hundreds of shares Float: this is where a company raises capital by offering shares to the public for the first time, or when a new issue is made to expand the existing base Fundamental analysis: is the analysis of the balance sheets and income statements of companies, in an effort to forecast their future stock price movement Hedge: a conservative strategy, used to limit investment loss by effecting a transaction that offsets an existing position Inside information: confidential information that is only available to a small number of people. Trading on the basis of this information is illegal and called insider trading Index: A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus, the percentage change is more important than the actual numeric value. Stock and bond market indexes are used to construct index mutual funds and exchange-traded funds (ETFs) whose portfolios mirror the
components of the index. The Standard & Poor's 500 is one of the world's best known indexes, and is the most commonly used benchmark for the stock market. Other prominent indexes include the DJ Wilshire 5000 (total stock market), the MSCI EAFE (foreign stocks in Europe, Australasia, Far East) and the Lehman Brothers Aggregate Bond Index (total bond market). Because, technically, you can't actually invest in an index, index mutual funds and exchange-traded funds (based on indexes) allow investors to invest in securities representing broad market segments and/or the total market. Market price: the current price to buy or sell NASDAQ: refers to the National Association of Securities Dealers Automated Quotation. Created in1971, it was the world’s first computerized system of the stock market. The NASDAQ facilitates trading and quotations on some 5,000 stock Nikkei: the Tokyo Index, comparable to the All ordinaries and the Dow Jones Option: this is the right to take up certain shares on specified terms within or at a specified time. An option is a contract between 2 parties, giving the taker (buyer) the right, but not the obligation, to buy or sell a parcel of shares, at a predetermined price, possibly on, or before a given date in the future (option’s expiration date). To acquire this right the taker pays a premium to the writer (seller) of the contract Paper trading: is a process in which you make investment decisions without committing real money. You make your decisions and trades just as you would in a real trade, taking into account everything you would consider if you were making a real investment, and you record your choices on paper. By studying how your theoretical investments perform, you can evaluate how well your approach is working, and establish when you would be ready to go live Price range for day: this is the highest and lowest price at which a share traded over the course of a day
Put Option: An option contract giving the owner the right, but not the obligation, to sell a
specified amount of an underlying asset at a set price within a specified time. The buyer of a put option estimates that the underlying asset will drop below the exercise price before the expiration date. When an individual purchases a put, they expect the underlying asset will decline in price. They would then profit by either selling the put options at a profit, or by exercising the option. If an individual writes a put contract, they are estimating the stock will not decline below the exercise price, and will not increase significantly beyond the exercise price. Consider if an investor purchased one put option contract for 100 shares of ABC Co. for $1, or $100 ($1*100). The exercise price of the shares is $10 and the current ABC share price is $12. This contract has given the investor the right, but not the obligation, to sell shares of ABC at $10. If ABC shares drop to $8, the investor's put option is in-the-money and he can close his option position by selling his contract on the open market. On the other hand, he can purchase 100 shares of ABC at the existing market price of $8, then exercise his contract to sell the shares for $10. Excluding commissions, his total profit for this position would be $100 [100*($10 - $8 - $1)]. If the investor already owned 100 shares of ABC, this is called a "married put" position and serves as a hedge against a decline in share price.
Rally: a price rise after a period of declining prices SEATS: stands for Stock Exchange Automated Trading System, which is the computer system that replaced floor trading on the ASX Standards and Poors: A financial services company that rates stocks and corporate and municipal bonds according to risk profiles. Additionally, Standard & Poor's produces and tracks the S&P indexes and publishes a variety of financial and investment reports. S & P 500: the most commonly used benchmark for overall US stock market Stock: a type of security that signifies ownership in a corporation and represents a claim on part of the corporations’ assets and earnings. Also known as stocks or equity. Stop loss: a predetermined level at which you will exit a trade, this can be crucial to the preservation of your trading bank Technical analysis: is the study of any historical price performance in an effort to chart and depict future price performance. Technical analysis is about interpreting graphs and using that information to chart and depict the road map and therefore probable direction of the stock Trading Journal: a trading journal provides a snapshot of your trading activities. Recording your trading activities on a daily basis will allow you to develop foundation and discipline to your trading. Volatility: the level of price movement in a market Volume: this refers to the number of shares traded