Sharemarket 101: Breaking down the sharemarket jargon

You’re pretty sure you want to start investing, but it all feels complicated and confusing. In today’s Sharemarket 101 lesson, we translate the sharemarket jargon to help you feel more at ease.

Sharemarket jargon is up there with mortgage jargon and real estate talk. Actually, sharemarket jargon is probably on a podium all on its own. The sharemarket is riddled with shop talk and strange expressions. Bear and bull, anyone?

It is all a bit of bull. Surely half the fear-factor of doing anything new comes from not understanding what the heck is going on. With this guide to sharemarket jargon, we hope to give you the in you need to start feeling more comfortable with investing in shares.

So, let’s start at the All Ords and slide on through the merry land of sharemarket jargon all the way to zombies… by the end of this lot you’ll probably feel like one of those yourself!

A-Z of sharemarket jargon

All Ordinaries Accumulation Index

Measure of performance of securities in the All Ordinaries index taking into account income as well as share price movement. It assumes dividends are reinvested.

See also ‘All Ordinaries Index (All Ords)’

All Ordinaries Index (All Ords)

The All Ordinaries Index – known as the ‘All Ords’ – is a measure of the value of the biggest 500 companies that are listed on the ASX. It tracks the performance of the top 500 companies listed on the ASX, based upon their market capitalisation. The All Ords is often used as a guide for the overall performance of the ASX, as the 500 companies included in the index make up around 90 per cent of the Aussie sharemarket’s total value.

Annual yield

Also known as dividend yield, it’s the dividend return from an investment. To calculate the dividend yield of a stock, you divide the company’s annual dividend by the current share price. So, Yield = (Dividend per share / Last market price) x 100.

ASX code

The unique code used by the Australian Securities Exchange to identify listed companies.

Australian Securities Exchange (ASX)

In 2006 the Australian Stock Exchange merged with the Sydney Futures Exchange to become the Australian Securities Exchange. Its official name is ASX Limited.

Basis point

One per cent of one per cent (0.01%).

Bear market

When share prices are generally falling and further falls are expected. The opposite of a bear market is a bull market.

Bearish view

The view that prices will fall.

Benchmark

A yardstick that a fund manager measures the performance of their fund against. The All Ords Index is the most common benchmark for Australian shares.

See also ‘All Ordinaries Index (All Ords)’.

Bid

The price at which someone is prepared to buy shares. It’s the opposite of an offer.

Blue chip

Shares highly valued in major listed companies that have a long history of profitability and stability. Blue chip shares are generally considered to be a lower risk investment as they are less volatile compared to other stocks. They often pay a dividend.

Bonds

Tradeable debt securities, usually issued by a government or semi-government body to raise money. Holders of the bond have lent money for which they receive a fixed rate of interest over a set period of time. The bond is repaid with interest on the predetermined maturity date. Bonds can be traded on the sharemarket and are generally considered to be a conservative investment.

See also ‘Conservative’ and ‘Government bond’.

More on this: What are bonds and when should you invest in them?

Broker

A broker is an individual or company who acts as an intermediary between an investor and a securities exchange like the ASX. If you’re still having trouble with all the sharemarket jargon at the end of this list, ask a broker for further interpretation. Nobody knows the ins and outs of sharemarket jargon quite like a broker!

See also ‘Trader’ and ‘Investor’.

Brokerage fee

The fee you pay to the stockbroking firm who buys or sells shares on your behalf.

Bull market

When share prices generally are rising, and further rises are expected. The opposite of a bull market is bear market.

Bullish view

View that prices will rise.

Buyback

A buyback is when a company offers to re-purchase some of its shares from existing shareholders. A buyback is a way for a company to boost shareholder returns, because after the buyback its profit will be spread across fewer shares. So, a buyback announcement will usually result in share prices rising.

Capital gain

The difference between the proceeds from the sale of a security and the initial cost of the investment. If the proceeds exceed the cost, this is said to be a capital gain.

Capital gains tax

Tax on the profit from the sale of capital assets such as shares or property. The ATO outlines the tax obligations here.

Cash market

The market for securities and physical commodities. Often referred to as the ‘underlying market’.

CHESS

The ASX’s Clearing House Electronic Sub-register System performs the settlement of share trades and provides an electronic sub-register for ownership of shares in ASX listed companies.

Commission

The fee that you pay an adviser or a fund manager to offer advice and buy or sell shares on your behalf.

Conditional order

Set 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. A conditional order allows you to pre-set a trade based on triggers you decide, without having to consistently monitor the market.

You can set a conditional order based on either price (eg. the share reaches the price you set and your order is to buy) or a market percentage increase or decrease (eg. if a stock goes beyond your specified percentage limit based on the previous day’s open/close/high/low price our order is carried out).

Confirmation

See ‘Contract note’.

Conservative

Style of investing that seeks to achieve stable returns. A conservative investor will look to preserve their portfolio’s value by investing in lower-risk securities. Conservative investing on the sharemarket tends to bring lower returns, but is more stable than other portfolios.

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.

Sometimes known as a ‘Confirmation’, just to add an extra layer of confusion to the sharemarket jargon…

Contributing shares

Shares which have been issued with only part of their value paid. For example shares may be issued with a par value of $1.00, of which only 50 cents has been paid, with a further 50 cents still owing.

Contributing shares are used by companies to incentivise investors. Typically, shareholders of contributing shares have the same rights as an ordinary shareholder, but it is proportionate to the amount the shareholder has paid.

See also ‘Ordinary shares’ and ‘Preference shares’.

Delayed price

The prices that you would see on a stock market ticker and on most general websites is in fact a delayed price. The trades that went through at that price will have occurred around 20 minutes ago and a new price may currently be being traded. This short delay in price is generally not an obstacle to effective trading, however there are some instances where it can make a major difference.

An example is when a big news story breaks about a company and its share price moves very quickly either up or down. In a case like this, the delayed price means you’re making trading decisions based on unreliable information.

Delisted

When a company is removed from the official list of the stock exchange and its shares are no longer quoted. Most companies who have been delisted on the ASX were either acquired by another company, merged with another company, had their securities mature or their business failed. There’s a list of ASX delisted entities here.

Derivative

Derivatives are financial products that obtain their value from a relationship to another underlying asset. These assets can be anything, but they are most often debt or equity securities, commodities, indices, or currencies. Derivatives are all a means of managing risk.

Distribution

A distribution is the share of income you receive from your ETF or managed fund.

Dividend

When a company makes a profit it can choose to either retain some of it for future expansion or it can make a dividend payment to shareholders. The dividend is the portion of the company’s profit that it decides to pay out to shareholders, in return for their investment.

Typically, dividends are paid twice a year, one interim and one final dividend. There are also one-off dividends known as ‘special dividends’.

See also ‘Final dividend’, ‘Interim dividend’, and ‘Special dividends’.

Dividend yield

See ‘Annual yield’.

Dynamic data

A service offered by online trading systems which allows you to view live market information without needing to click a refresh button.

EBITDA

A company’s earnings before deducting interest, tax, depreciation and amortization. EBITDA is a measure of a company’s operating performance. It’s basically a way to evaluate a company’s financial performance and earnings potential without the impacts of finance and accounting decisions.

To completely translate the sharemarket jargon here: EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization.

Equities

Often used instead of saying shares, but there is a slight difference. The term equity refers to the value of a business or an asset, after all liabilities have been paid off.

Equity capital or equity funding

Capital raised by a company by issuing shares. An alternative to debt funding.

See also ‘Equities’ and ‘Shares’.

Exchange Traded Commodity (ETC)

ETCs offer the possibility to invest in single commodities and precious metals. The performance of an ETC is based either on the spot price (price for the immediate supply) or the future price (price for the supply in the future) of a single commodity or a basket of commodities.

There are ETCs for precious metals, industrial metals, oil, natural gas, soft commodities and livestock.

See also ‘Exchange Traded Fund (ETF)’.

Exchange Traded Fund (ETF)

Investment fund designed to track the performance of an asset such as a share price index and which allows for applications and redemptions in the primary market on a daily basis either in -specie or in cash.

More on ETFs: A guide to Exchange Traded Funds (aka WTF are ETFs)

See also ‘Managed funds’ and ‘Open ended funds’.

Exercise price

In options trading, an exercise price (also known as a strike price) is set for each option by the seller of the option, who is also called the “writer.” The exercise price is the price at which you can buy the underlying stock if you want to use the option.

See also ‘Futures’ and ‘Options’.

Fair value

An estimate of the price an option should sell at in an efficient market. It’s calculated as the current value of the underlying shares or index, plus an amount referred to as the ‘cost of carry’.

FAANG stocks

FAANG is an acronym for the five most popular and best-performing US technology companies: Facebook, Amazon, Apple, Netflix and Google.

Final dividend

A final dividend refers to the dividend declared by a company’s board of directors after the company has issued its full-year financial statements.

See also ‘Dividend’, ‘Interim dividend’, and ‘Special dividends’.

Float

See ‘IPO’.

Franked dividend

A dividend paid by a company out of profits on which the company has already paid tax. The investor is entitled to an imputation credit, or reduction in the amount of income tax that must be paid, up to the amount of tax already paid by the company. The company will issue a franking credit, which you claim back in your annual tax return. You can find out more about how that works on the ATO website

More on this: Tax time is all about risk assessment

Fund manager

Individual or organisation in charge of investing funds on behalf of a financial institution.

Fundamental analysis

An overall examination of the financial position of a company, its industry sector, and the current economic environment.

Futures

An agreement to buy or sell an asset or cash equivalent at a date in the future at a price agreed today. The contracts are traded on a futures market.

Gearing

See ‘Leverage’.

Government bond

Debt security issued by the government.

Hedge

Transaction which partly or totally offsets the risk of a current holding.

Hedge funds

Known as ‘absolute return’ funds, hedge funds aim to deliver returns in both rising and falling markets, so they are an aggressive, high-risk investment option. Compared to traditional fund managers these funds have greater scope to use derivatives, short positions, and exotic securities.

HIN (Holder Identification Number)

Number identifying your registration on the CHESS sub-register. It identifies you as the owner of your securities and you should store it securely.

Imputation credits

Tax credits passed on to a shareholder who receives a franked dividend.

Index (indices)

A measure of a change in value for a group of assets.

Index fund

A managed fund with a portfolio constructed to match or track the return before fees of a particular market index, such as the ASX 200 or the ASX Small Ordinaries Index.

See also ‘All Ordinaries Index (All Ords)’.

Index futures

A futures contract which has as its underlying asset an index, typically a share price index.

Infrastructure fund

Managed investment that invests in infrastructure assets, such as transport, telecommunications, materials handling and utilities.

Interim dividend

When a dividend is paid more than once a year, dividends other than the final one are called interim dividends.

See also ‘Dividend’, ‘Final dividend’ and ‘Special dividends’.

Investment

An asset acquired for the purpose of producing income and/or capital gains for its owner.

Investor

Often used interchangeably with the term Trader, there is actually a difference between the two and it’s relevant to the way the income you earn from your shares is treated for tax purposes. If you’re not trading shares as a business, you’re probably an investor. According to the ATO, if you hold shares as an investor:

your shares are assets and are subject to capital gains tax when you sell them
your costs are taken into account at the time you sell your shares
if you have a capital loss you can use it to offset capital gains, but not to offset income from other sources
income is earned from dividends and similar receipts.

IPO

When a company first lists on a stock exchange such as the ASX, it’s called a float, or an Initial Public Offering (IPO).

Companies use an IPO as a way to raise funds for their business. They sell a set number of shares in the company directly to the public, usually at a fixed price per share. These shares are then listed on a stock exchange, where they can be traded between buyers and sellers at the market price. You can find all upcoming ASX floats and listings here.

Kangaroos

A common international nickname for the All Ords.

See also ‘All Ordinaries Index (All Ords)’.

Leverage

The extent to which an investor or business is using borrowed money. Also known as gearing.

LICs

A Listed Investment Company or LIC is an investment, listed on an exchange such as the Australian Securities Exchange (ASX). Many LICs operate like a managed fund, they have an external or internal fund manager, who selects and manages the company’s investments.

Limit

The price limit for an order. For example, a bid of $5.00 means you are not willing to pay more than $5.00 for the share.

Limit order

An instruction to a broker to buy or sell a security at a specified price or better. You would give your broker a limit order if you wanted certainty about the price you will buy or sell your shares at.

Liquidity

Measures the ability to buy or sell assets easily and with little impact on price.

Listed company

A company which has agreed to abide by the ASX Listing Rules so that its shares can be bought and sold on the ASX.

Listing rules

The rules that govern the procedures and behaviour of all entities listed on ASX. You can find the rules here.

LITs

A Listed Investment Trust or LIT is an investment listed on an exchange such as ASX, incorporated as a trust. LITs are also closed-ended funds, so investors buy and sell units on the exchange.

Live price

The current price of a share.

Long position

When an investor buys a security or derivative with the expectation that it will rise in value. Investors maintain ‘long’ security positions in the expectation that the stock will rise in value in the future. A long position indicates a bullish view.

Lot

Unit of trading equivalent to one futures contract.

Managed fund

When you invest in a managed fund, your money is pooled together with other investors. A fund manager then buys and sells assets, such as shares or bonds, on your behalf.

Management Expense Ratio (MER)

Fee paid to the manager of an investment fund. The MER is normally expressed as an annual percentage or “basis point” charge (where one basis point equals one hundredth of a percent) on the fund’s net asset value.

Margin

The amount calculated by a clearing house as necessary to cover the risk of financial loss on options contracts, futures contract and CFDs.

Market order

Order to a broker to buy or sell at the current market price at the time the order is given.

Market price

Also known as a trade price, the market price is the current price at which an asset or service can be bought or sold. It’s determined by the forces of supply and demand. It may be the last price at which the shares traded, or the most recent price offered or bid for the shares.

Market risk

The risk of a general decline in the market.

Merger

When two or more companies combine either by takeover or creation of a new entity.

Mutual fund

The American term for a managed fund.

Novation

Process undertaken by the clearing house whereby it substitutes itself between the buyer and the seller of a trade, acting as the ‘middleman’ to guarantee the obligations of each party.

Offer

Price at which someone is prepared to sell securities. It’s the opposite to a bid.

Open ended fund

Managed investment where there is no restriction on the number of units in the fund that will be issued. ETFs are open ended funds.

See also ‘Exchange Traded Fund (ETF)’ and ‘Managed funds’.

Options

An option is basically contract that allows you to sell or buy a stock at a predetermined price within a set time frame.

Ordinary shares

Ordinary shares are the most commonly traded security in Australia. If you own ordinary shares you are a part-owner of the company. As a result you may receive payments in cash, called dividends, if the company trades profitably.

Pari passu

A Latin phrase that means ‘equal footing’ or ‘ranking equally’. Shares are pari passu if all the new equity shares issued by a publicly traded company have equal rights with existing shares or those earlier issued.

Partly paid shares

See ‘Contributing shares’.

Penny stocks

Penny stocks are low-price shares in small, often newly-listed companies. In Australia, penny stocks are also called ‘small-cap stocks’ and are defined as listed companies with a market cap of less than $50 million. You can find out more about them here.

Preference shares

Preference shares give the holder preferential rights to the shares in the event of a liquidation. Typically, preference shareholders have priority over ordinary shareholders and contributing shareholders.

See also ‘Ordinary shares’ and ‘Contributing shares’.

Private equity fund

Investment fund not available to the general public that often makes concentrated investments directly into companies.

Pullback

A market pullback is a temporary pause or dip in an asset’s overall trend. It’s when a share price that’s being going up, pauses or even goes down for a short period (usually not more than two or three sessions), or vice versa.

While pullbacks can be unnerving, they are generally temporary and short in duration.

Return on investment

Earnings from investments over a given period – usually expressed as a percentage per year of the amount invested.

Risk

The chance or probability that an investment will result in a loss to an investor. Your tolerance for risk will pay a big role in determining the kinds of shares you invest in.

Share codes

Every stock that that trades on the Australian Securities Exchange is given a three letter code for identification. For example, Woolworths is WOW, Coles is COL and the Australian Securities Exchange itself is ASX.

Share registry

When a company lists on the stock exchange, it engages a share registry to manage its book of shareholders and the administration that goes along with it. As a shareholder, you will have a relationship with both your broker and the share registry for any companies you own shares in. The share registry will send you any holding or dividend statements.

Short position

Trader who has sold or who holds a position that will benefit from falling prices. The aim of short selling is to profit on a stock when the price decreases.

Short selling

Short selling is a high-risk investment strategy where you borrow a security and sell it on the open market, planning to buy it back later for less money. The aim of short selling is to profit on a stock when the price decreases. The big risk is that the price won’t decrease and you’re left ‘short’. The money you can lose by short selling is basically unlimited since the price of any share can climb to infinity.

Small-cap stocks

See ‘Penny stocks’.

Special dividend

Sometimes companies that don’t pay regular dividends will pay a special dividend. This is usually a one-off payment attached to a particular event within the business. Special dividends allows a company to get cash back to shareholders without committing to a regular payment.

If they are doing particularly well and have excess capital, companies that pay regular dividends can also pay a one-off ‘special’ dividend from time to time.

See also ‘Dividend’, ‘Final dividend’ and ‘Interim dividend’.

Speculative stocks

A speculative stock is a high-risk, aggressive stock with uncertain prospects. Speculative stocks offer potentially high returns to compensate for the high risk associated with them. An example of a speculative stock is a penny stock.

See also ‘Penny stocks’ and ‘Zombies’.

Stocks

Equities or shares.

See also ‘Equities’ and ‘Shares’.

Stock exchange

A stock exchange is a marketplace for the buying and selling of shares, bonds and securities. In Australia it’s called the Australian Securities Exchange or ASX and it’s ranked 12 in the world’s biggest stock exchanges. The top 10 biggest stock exchanges around the world changes regularly, but ranking at the time of publication is:

New York Stock Exchange
NASDAQ (National Association of Securities Dealers Automated Quotations – also located in New York)
Shanghai Stock Exchange
Euronext
Japan Exchange Group
Hong Kong Exchanges
Shenzhen Stock Exchange
LSE Group, UK and Italy
TMX Group Canada
National Stock Exchange India

See also ‘Australian Securities Exchange (ASX)’.

Stop loss

A stop-loss limits your risk on a trade. It’s basically a conditional order that means you exit a trade once a certain price is reached. So, if you buy a stock at $5 and place a stop-loss order at $4.50, your stop-loss order will execute if the value of your share drops to $4.50. You’ll sell your share at that price, preventing further loss. If the value of the share doesn’t dip below $5, your stop-loss order won’t trigger.

Strike price

See ‘Exercise price’.

Substantial shareholder

A person/company which holds more than 10% of a company’s voting rights.

Supply and demand

The principle of supply and demand is a fundamental concept of economics and it makes the sharemarket go ’round (or at least up and down).

Demand means how much of a product is wanted by buyers.

Supply is how much the market can offer. Share price is a reflection of supply and demand.

Takeover

A takeover or acquisition is the purchase of one company by another. This can be done by purchasing a majority of shares in the target company. It’s a type of merger, but not an equal one.

Technical analysis

A method used to identify investment opportunities through the study of price action. It examines the history of trading and the price of a security or index, usually in the form of a chart.

Tick

A tick is a measure of the minimum upward or downward movement in the price of a share.

Trader

Often used interchangeably with the term investor, there is actually a difference between the two and it’s relevant to the way the income you earn from your shares is treated for tax purposes. If you’re trading shares as a business, you’re a trader. According to the ATO, if you are a share trader your:

shares are treated like trading stock in a business
gains are treated as ordinary income
losses and costs are treated as deductible expenses in the year they are incurred.

Trading fees

The fee charged by a broker or investment adviser to use their services. They pay for any investment advice or to execute orders on the sale or purchase of securities including stocks. commodities, options, or exchange-traded funds (ETFs).

Trusts

Also known as a unit trust, a trust is a collective fund which holds a portfolio of securities on behalf of the investors who hold units in the trust.

Unlisted company

Any company that is not listed on a licensed stock exchange. Securities issued by unlisted companies generally cannot be traded on ASX.

Volatility

Measure of the amount of fluctuation in market price.

See also ‘Market price’ and ‘Risk’.

Yield

Return on an investment expressed as a percentage. Returns on shares can be in the form of dividends or the effective rate of interest paid on a bond or note.

Zombies

Zombie companies are neither dead or alive. They earn just enough money to continue operating, but they are unable to pay back their debts. They are generally just one market event away from insolvency or requiring a bail out from the banks.

Many zombie companies keep operating to preserve jobs, but others are there because they predict they are close to inventing or discovering something big will change their fortunes. Zombie stocks are considered extremely risky ,but they are an interesting opportunity for speculative investors.