Glossary of Stock Trading and Investment Terminology

Offer (Ask)


Offer refers to the price at which the sellers are willing to sell their shares. In most cases offer is the highest price that a buyer is willing to pay for a particular asset while on the other hand it is the lowest price at which the seller is interested to sell the asset.

Arbitrage


Arbitrage is a type of trading approach where a trader buys and sales similar type of commodities in multiple markets in an attempt to make profit from the discrepancy of the price. A person who does arbitrage trading is called an “arbitrageur”.

Beta


Also referred to as "beta coefficient," beta is a number describing the relation of returns compared with that of the market. It measures an investment’s volatility and indicates sensitivity of a stock’s rate of return. For example, a beta higher than 1 means higher price volatility than market volatility. A beta below 1 means lower price volatility than the market. The beta coefficient is an important element in the Capital Asset Pricing Model (CAPM).

Allocated Pension


Allocated Pension
The concept of Allocated Pension is gaining popularity among retirees in Australia. Allocated pension allows a retiree to enjoy the sum of their superannuation and use it as capital for investment. With Allocated pension scheme, retirees can enjoy a regular stream of income from their superannuation funds quarterly, monthly, half yearly or yearly over a period of time that approximates to the life expectancy. The other term that closely relates to allocated pension is account based pension or annuity.

The Basic Attributes of an Allocated Pension

Dividend Imputation


The term "Dividend Imputation" refers to a particular corporate taxation system under which the tax paid by a business organisation is attributed completely or partially to the investors (shareholders) in the form of tax credit which allows the organisation to slash its income tax payable on the distribution of its earnings.

Buy and Hold


Buy and Hold is a long term investment strategy where shares are bought then held, usually for many years. Day trading is the inverse of buy and hold. In buy and hold, shares are held on the assumption that stock prices will go up in the long run (capitalist economies expand, so stock prices rise as well).

Inflation


The term inflation, also known as the Consumer Price Inflation (CPI) refers to the rise in the price level of goods and services which mean the consumers will have to spend more money to buy the same amount of goods or services. Inflation is one of those factors that reduces the buying power of the customers and is considered as a “true enemy” for the investors because of its negative influence over the market. Market forces as well as the Government policies usually play a key role in the rise and decline of inflation in a country.

What Causes Inflation?

EBITDA


EBITDA refers to the earnings before interest, taxes, depreciation and amortisation. This is a type of measurement process which allows an investor to have some idea about how much money a company is generating before the deduction of taxes, deprecation and amortisation. It is very much important for any investor to know how much money a particular business is making before deciding whether to invest money in that business and EBITDA is considered as one of those methods that can be used by the investor to find that. EBITDA is calculated through the following formula:

Price/Earnings Ratio


Price/Earnings ratio (also called earnings multiple) is the amount of money you pay for every dollar the company earns. The formula for the P/E ratio is market value per share divided by earnings per share (EPS). Let's say share price of company ABC is at $15 and earnings per share is $2. The P/E ratio is $7. Company XYZ, on the other hand, has a share price of $10 with an EPS of $5. P/E ratio is $2.

Open Position


A long or short position which is subject to market volatility and has not been closed yet by an opposite transaction is termed as an open position.

A large proportion of futures contracts do not result in the making or taking of delivery but instead the trading of futures positions for closing the original position leads to an exit for the open positions.

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