Glossary of Stock Trading and Investment Terminology

Derivatives


Derivatives are financial instruments whose value are dependent on or derived from the price of some other underlying asset (usually bond, currency, equity or commodity). Options, futures, forwards and swaps are some of the common form of derivatives. Most of the derivatives are characterised by greater leverage.

Currency Correlation


In the currency market sometimes it is found that one currency pair is following the movements of another pair. In forex trading this phenomenon is called the currency correlation- something that many forex traders use to make profit in the currency market. The correlation among two currency pairs will be either positive or negative. Now regardless of what type of currency correlation it is, it will always remain within the range of +1 and -1.

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

Guaranteed Stop Loss


What is Guaranteed stop loss?

Guaranteed stop loss (GSL) is a kind of protection provided by a CFD provider to an investor in order to make sure that the investor is not incurring significant amount of loss due to unfavorable market conditions. The whole idea of guaranteed stop loss is to reduce the negative effects of price gapping. It will provide the necessary protection for the investors regardless of what happens to the original share price.

Understanding the GSL through scenario

Breakout


When prices pass and stay through an area of support and resistance, breakout happens. On a chart, breakout is when stock prices exit an area pattern. In general, traders buy when the price passes above the resistance point and sell when the price passes below the resistance point. Breakouts can be due to financial unions, developments, and evolutions (announcement of company alliance or takeover, etc.).

Mezzanine Financing


Mezzanine financing is a combination of debt and equity capital that is given on loan usually to fund company development projects. It gives the lender the right to equity or ownership interest in the company if the leverage is not paid back in full by the maturity date.

Mezzanine financing is usually high priced (with returns around 20 to 30 percent) because the funds are granted without due diligence done by the lender and little or zero collateral from the borrower. Mezzanine funds are generally used in line with bank loans and the borrower's own equity to fund the expansion projects.

Earnings Per Share - EPS


The term earning per share (EPS) refers to the net profit of a company divided by the number of company shares on issue. Earning per share refers to the amount of profit generated in terms of each stock of the company. The equation of calculating EPS can be illustrated in the following way:

Earnings per Share = Net Earnings After Tax / Number of Ordinary Shares

So from that equation, we can say that if a company has as much as $2 million worth of earnings and 600,000 shares outstanding, then the EPS of that company is going to be $2 million/600,000 = $3.33.

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%.

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

RSI


Relative Strength Index or RSI is a technical analysis indicator that determines the magnitude of gains against the magnitude of losses over a certain period of time. RSI is widely used to determine whether a market is overbought or oversold. The calculation involves doing analysis of the bullish ranges against the bearish ranges for a certain period of time which is usually 14 days.
The calculation of RSI is done in the following way:

RSI = 100 - (100 / 1 + RS)

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