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Learn the lingo

This article appeared in the March 2011 ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.

It’s important to know the sharemarket jargon.

Photo of Graham O'Brien By Graham O'Brien, ASX

If you see or hear an unfamiliar sharemarket term, use the ASX Glossary or the table below, which has 50 key definitions. Better still, complete one of the free ASX Online Share Courses and follow the ASX Getting Started in Shares program. It runs seminars for investors who know little or nothing about the sharemarket and are eager to learn.

Never feel as if you are the only person who may not understand the language of the sharemarket. A common request at ASX education events is for more information on sharemarket “jargon”. Some of the terms below came up as questions in recent ASX Getting Started in Shares events.

Key sharemarket terms

AGM

Annual meeting of shareholders required by law where directors inform shareholders of company performance and future prospects. Shareholders vote on board elections and significant company issues.

asset allocation

Proportion of total capital invested in the different asset classes.

bearish

View that prices will fall.

bear market

When prices are falling and further falls are expected.

benchmark

Yardstick that a fund manager uses to compare the performance of their fund to, say, the S&P/ASX 200 index, which may be used as a benchmark for Australian shares.

bid

Price at which someone is prepared to buy shares (opposite to offer).

blue chip

Larger companies with a long history of profitability and stability.

brokerage

Fee paid to a stockbroking firm for buying or selling of shares.

bullish

View that prices will rise.

bull market

When prices generally are rising and further rises are expected.

capital gains tax

Tax on the profit from the sale of capital assets such as shares or property.

capital growth

Increase in the value of an asset such as an investment in shares.

CHESS

ASX's Clearing House Electronic Sub-Register System, which is a settlement system and central register for electronic transfer of share ownership and cash payments.

cum dividend

Cum means 'with'. Shares quoted cum dividend entitle the buyer to the current dividend. The price of the shares will usually reflect the amount of the dividend. Similarly, shares 'cum rights' entitle the buyer to participate in the new issue of shares.

diversification

Spreading investments over a variety of investment categories with different performance characteristics, in order to reduce risk.

dividend

Distribution of part of a company's net profit to shareholders. Usually expressed as a number of cents per share. Many ASX-listed companies (see listed company) pay dividends twice each year, usually as a smaller 'interim' dividend and a larger 'final' dividend.

dividend yield

Dividend shown as a percentage of the last sale price.

(DRP) dividend reinvestment plan

An alternative to cash dividends, allowing shareholders to receive new shares instead of cash.

(EPS) earnings per share

Measures of earnings attributed to each equivalent ordinary share over a 12-month period. Calculated by dividing the company's earnings by the number of shares on issue in accordance with AASB 1027 'Earnings per share'.

equities

Often used as a synonym for shares. Represents part-ownership of a company.

ex date

Date on which shares change from being quoted "cum" to "ex". It is usually the fourth business day prior to the record date.

ex dividend

Shares which when sold entitle the seller to retain the current dividend. Shares are usually quoted ex-dividend four business days before company's book close.

ex dividend date

Four business days before the company's record date. To be entitled to a dividend a shareholder must have purchased shares before the ex dividend date.

franked dividend

Dividend paid by a company out of profits on which the company has already paid tax. The investor is entitled to an imputation credit, or reduction in the amount of income tax that must be paid, up to the amount of tax already paid by the company.

fundamental analysis

Method of analysis using ratios and percentages calculated from financial data of a company to assess the company's quantitative and qualitative aspects.

(HIN) Holder Identification Number

Number identifying registration in CHESS.

imputation credits

Tax credits passed on to a shareholder who receives a franked dividend.

Index (Indices)

A measure of a change in value for a group of assets.

interim dividend

When a dividend is paid more than once a year, dividends other than the final one are called interim dividends. Typically, dividends are paid twice a year, one interim and one final dividend.

limit order

Instruction to a broker to buy or sell a security at a specified price or better.

liquidity

Measure of the ability to buy or sell assets easily and with little impact on price.

listed company

Company that has agreed to abide by ASX Listing Rules so that its securities can be bought and sold on ASX.

market capitalisation

Total number of shares on issue multiplied by their market price. This can be applied to work out the market value of one company or of the value of all companies listed on the exchange.

market order

Order to a broker to buy or sell at the current market price at the time the order is given.

market price

Prevailing price of shares traded on ASX. May be the last price at which the shares traded, or the most recent price offered or bid for the shares.

(NGF) National Guarantee Fund

The NGF is a compensation fund available to meet certain types of claims arising from dealings with participants of ASX and, in limited circumstances, participants of ACH.

offer

Price at which someone is prepared to sell securities. (opposite of bid).

(PDS) Product disclosure statement

Offer document explaining the features of a financial product, including the risks, benefits and such other information that might reasonably be expected to have material effect on an investment decision.

(PE) price-earnings ratio

The number of times the price covers the earnings per security over a 12-month period. Investors commonly use this ratio to measure the attractiveness of particular shares and to compare shares in one company with those in another.

record date

The date used in determining who is entitled to a dividend or other entitlement associated with a security. Those on the register on the record date are eligible for the entitlement. To allow for settlement of trades, ex dividend dates and other ex entitlement dates are usually set four business days prior to the record date.

secondary market

Trading on market after the primary issue.

share indices

Measure of movement in the price of a nominated group of shares.

share registry

Organisation which, on behalf of a company, records changes in share ownership, issues shareholding statements and makes adjustments for dividend payments, bonus and rights issues.

S&P ASX 200

Investable benchmark for the Australian equity market. The S&P/ASX 200 is comprised of the S&P/ASX 100 plus an additional 100 stocks.

(SRN) Security Reference Number

Allocated by an issuer to identify a holder on an issuer sponsored or certificated subregister.

takeover

Acquisition of a controlling interest in a company through the purchase of shares.

technical analysis

Method used to identify investment opportunities through the study of price action. A chart representing past price movements is the principle tool used to identify trends on which analysts can base their future predictions.

trading halt

An interruption to trading at the request of an entity that is not a suspension from quotation.

yield

Return on an investment expressed as a percentage.

From the author

Graham O’Brien is an ASX business development manager.


The views, opinions or recommendations of the author in this article are solely those of the author and do not in any way reflect the views, opinions, recommendations, of ASX Limited ABN 98 008 624 691 and its related bodies corporate ("ASX"). ASX makes no representation or warranty with respect to the accuracy, completeness or currency of the content. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian financial services licensee before making investment decisions. To the extent permitted by law, ASX excludes all liability for any loss or damage arising in any way including by way of negligence.

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