Glossary of Stock Trading and Investment Terminology

Absolute Return Funds


Absolute return funds (sometimes called non-directional funds) seek for positive returns regardless of market trends. Absolute return fund is a type of hedge fund. Conservative investors who want low risk and are willing to give up some return find absolute return funds helpful. Hedge fund managers can also use many different investment tools within an absolute-return strategy.

Bonus Issue


A bonus issue (also called capitalisation issue, bonus shares, scrip issue) is shares given to shareholders free. These are shares you do not have to pay for and a means for the company to distribute historic retained profits. No cash changes hands between investors, so this is an accounting transaction. Bonus issues can boost the marketability of stock.

Bear Market


Downward market trends and heavy decline in stock prices describe a bear market. Bear market duration can be short or long (decades or more). In general, a bearish market is pronounced when prices decline by 15-20 percent or more over a period of two months or over.

Investors usually lose confidence and sell shares in a bear market, but there are people who prefer to buy and trade rather than buy and hold, thus making quick gains. These traders take advantage of the bearish turn by strategies such as short selling.

Value Funds


Funds that try to make profit by investing on under priced stocks are known as value funds. A value fund looks for cheap stocks that it considers being under valued by the market and invests on such shares with expectations of making profit in future when these shares will rebound with increased demand.

Value Funds: Determining Stocks to Invest

What is a Market Maker?


In terms of the Australian stock market, a market maker is a broker who creates a simulated market, quoting both a buy and a sell price in a financial security, either a stock or a derivative (e.g. ASX instalments, forex dealers or certain CFD brokers). Market makers make their profit from the bid offer spread. Because marketmakers quote buy and sell simultaneously, they create liquidity in the market.

Book Value


The term “Book Value” refers to the value of an asset that is recorded in its balance sheet which usually is the cost of the asset less depreciation, amortisation and impairment costs that are related to the asset.

Determining the Actual Stock Price- Why is This So Important?

Limit Order


Limit order is a type of order that can be placed with a brokerage to trade a specific number of shares at a specified price or at a better price than that. Some brokerages may charge a fee for allowing the traders to place limit orders.

Advantages of Using Limit Order

Limit order is one of the most popular types of orders for the traders since it allows an investor to specify the price for the instrument at which he wants to buy or sell it. In addition to this, the limit order gives the opportunity to a trader to line up in the queue with the other traders.

EBIT


Earnings before interest and taxes or in short EBIT is a measure of a company’s profitability. Under this system, the profitability of a company is calculated without considering the taxes paid or benefits received and interest paid on debt. The formula can be presented like this:

EBIT = Revenue – Operating expenses

Moving Averages


Moving average (in short MA) is a kind of indicator which is used for technical analysis in order to show the average value of the price of a security over a specific period of time. Moving averages are normally used to serve various purposes like for defining areas of possible support and resistance, for determining the momentum as well as for smoothing out the noise which occurs due to volume functions.

Net Tangible Assets (NTA)


The net value of a company is represented by asset backing or Net Tangible Assets (NTA). To find the Net Tangible Assets, all you need to do is divide the estimated value of a company (deducting liability from total asset) by the number of stocks that are on issue.

A possible measure of the value of a particular stock can be the “net tangible asset backing per ordinary share” (something also known NTA). However, it is to be mentioned that the effectiveness of this particular measure is subject to some reservations. The market value of a stock can be compared with it.