Glossary of Stock Trading and Investment Terminology

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:

Shares Buffer


The margin loan specifies the amount that a trader can borrow and a small buffer which usually remains within the range of 5 to 10%. The share buffer means that the margin call is not going to be activated due to the small falls in the market. If a trader borrows more than the specific buffer, s/he becomes a subject to margin call.

Buy and Hold


Buy and Hold is an investment strategy where shares are bought then held for long periods of time (years), regardless of market fluctuations. 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). The opposite of buy and hold is day trading.

Bottom Up Investing


When investing bottom up, individual shares and companies are researched and analysed. Investments are made based on future forecasts, rather than market cycles. Bottom up investing is recommended for investors who are familiar with the market. It is not a recommended strategy for those who make global-scale investments.

Grossing Up The Dividend


The rate of return from the dividend payments after taking the benefits of imputation credits (also known as franking credits) to the investors in account is measured through grossing up the dividend.

In the past, dividend yields were quoted by dividing the dividend of the full year in cents per share by the market price in cents per share. This way, the result could be compared very easily and accurately with the yields generated by the other type/form of investments.

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

MACD - Moving Average Convergence-Divergence


“Moving Average Convergence/Divergence” or in short MACD is a technical indicator which is used to analyse the relationship between two moving averages of prices. MACD calculates the difference between two Exponential Moving Averages (EMA) which is considered as a trend-following momentum indicator.

Day Trading


Day trading refers to purchasing and selling various types of financial instruments within the same day in order to make profits from the price discrepancy. The person who follows this type of trading approach is called- a day trader. Usually the new traders tend to be more attracted to day trading as they want to get out of the pressure of holding a large amount of money at stake and want to sell off the instrument for profit as soon as the price goes up.

Listed Investment Company (LIC)


The listed investment companies or LICs are the ones that are managed by investment professionals who invest in assets like local and international shares as well as in infrastructure assets. LICs have a long history in the Australian market. The Australian Foundation Investment Company (AFIC) is one of the oldest LICs of the country which is about 79 years old. Some other old LICs include Choiseul and Milton and Argo Investments.

Fundamental Analysis


Fundamental analysis is a technique of estimating the future returns from the stocks of a company by analysing its financial statements, market share, competency of management, competitive advantage and many other factors. In order to forecast an accurate return in future, fundamental analysis considers the current as well as historic data.

When it comes to fundamental analysis of a company, there are two types of fundamental factors a trader needs to take under consideration:

  • the quantitative factors; and
  • the qualitative factors

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