Glossary of Stock Trading and Investment Terminology

Zero Sum Game

Zero Sum Game refers to the situation where one party or individual gains as a result of the equivalent loss of another party or individual. In this case, the net change of total wealth is zero among the parties since wealth has just shifted from one to another. It can be seen in a way that, every buyer has a seller and there is a short position available for every long position. Some may also see it like for every dollar that has been gained, there is a loss of one dollar.

Borrowing to Invest

“Borrowing to invest” refers to borrowing money from a lender or financial institution to buy shares, bonds or managed funds. It is similar to taking out a mortgage to buy a house, land or any other property. This is a common practice among the investors and considered as an effective financial strategy as long as the entire procedure is managed properly. The whole idea of “borrowing to invest” is to invest more money in the market (stock market or managed funds) to increase profitability.

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.

Contingent Order

Contingent order (also called a net order or a "not held" order) is the placement of two share orders; one order cannot be initiated without the other. For example, customer A places a buy order and a sell limit order in the market. The buy cannot proceed unless the sell limit order is also executed. An example of a contingent order is a buy-write. When two separate transactions must occur at the same time, contingent orders are usually placed.

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.

Margin Call

When the balance of a margin loan surpasses the loan limit by more than the buffer, this is when the margin call gets triggered. Say for example, a trader has invested about $200,000 in the ASX where $50,000 was self-financed and rest of the money was borrowed. In that case LVR is going to be 75%.


BRIC is an acronym for the group of four big emerging economies - Brazil, Russia, India and China, also called the "Big Four." For many businesses, these countries represent very good expansion opportunities due to low production costs. In 2003, Goldman Sachs reported that India and China could become the world’s biggest providers of services and manufactured goods while Russia and Brazil could turn into the main raw material suppliers.

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


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”.

Structured Investment Products

Structured investment products (SIPs) are a type of customised investments. The product is designed with the investor's specific goal and risk tolerance in mind. SIPs generally include various derivatives. These products usually provide investors with capital protection (many SIPs offer 100 percent protection of capital, with higher interest rates as a trade-off) or capital growth opportunities. For example, investors with greater tolerance for risk get greater exposure to derivatives and equities, while conservative investors get higher exposure to fixed income markets.