Stocks
Terminology
A
Ask Price
The minimum price that a seller is willing to accept for a stock. If you are buying the stock, you pay the ask price.
B
Benchmark
A standard against which the performance of a security, unit trust or investment manager can be measured.
Beta
A measure of a stock's volatility in relation to the market. A beta of less than 1 means a stock is less volatile than the market, while a beta of more than 1 means a stock is more volatile than the market.
Bid Price
The maximum price that a buyer is willing to pay for a stock. If you are selling the stock, you receive the bid price.
Bid-Ask Spread
The difference between the bid and ask price. It represents the profits kept by the market maker that handled the transaction, and is also an indicator of a stock's liquidity.
Blue-chip Stock
A stock that is considered to be well-established and more financially-sound.
Broad Lot
A standardised number of stocks (stipulated by the stock exchange) that must be bought or sold in a single transaction.
C
Capital Appreciation
Occurs when the market price of a stock increases above the price that an investor originally paid for the stock.
Common Stock
A type of stock typically issued by publicly traded companies, and it entitles holders to the net assets of a company, although they are at the bottom of the priority ladder. Common shareholders have a say in the company through exercising their voting rights, and they are entitles to a fraction of the profits a company generates through dividend payments, which can potentially increase if the company does well.
Compounding
The process of earning interest, not only on the principal, but on the accumulated interest as well, such that the value of an investment increases exponentially.
Cyclical Stock
Refers to a company that operates in industries that are highly sensitive to the business cycle, and whose profits and stock price are tied to the overall strength of the economy.
D
Defensive Stocks
Refers to a company that operates in industries that are largely insulated from the business cycle, and whose profits and share price are less correlated to the overall strength of the economy.
Diversification
The practice of spreading your investments across a wide array of asset classes, geographies and segments to help protect your portfolio from the effects of any one market trend, event or setback.
Dividend
A slice of a company's profits that is paid out to shareholders.
Dividend Ex-Date
The date on (or after) which a stock trades without its dividend. An investor will receive a declared dividend if the stock is purchased before the ex-date. If the stock if purchased on (or after) the ex-date, the seller will receive the dividend.
Dividend Payable Date
The scheduled date on which a declared dividend will be paid.
Dividend Record Date
The date on (or before) which an investor must be on the company's book as a shareholder in order to receive a declared dividend.
Dividend Yield
A financial ratio that measures the amount of dividends paid out by a company relative to its stock price.
Dollar Cost Averaging
A technique of investing a fixed sum of money into an investment on a regular basis, regardless of share price. Over the long run, the cost of the investment averages out.
E
Equity
Equities, also commonly known as stocks, represent ownership claims on a company's net assets.
F
Fundamental Analysis
A methodology that evaluates the health and performance of a stock by examining its financial statements, and other related economic and qualitative factors.
G
GICS
Acronym for Global Industry Classification Standards, which is a standardised system for classifying stocks into 10 sectors.
I
Initial Public Offering
An initial public offering occurs when a private company sells its stocks to the public for the first time.
Intrinsic Value
A stock's intrinsic value refers to its actual value, given a complete understanding of its business characteristics, financial performance and other variables that may not be accurately reflected in the current market price.
L
Limit Order
A type of order that allows investors to specify the maximum price he is willing to pay for a stock, or the minimum price he is willing to receive for a stock.
Liquidity
The ease at which a stock can be bought or sold in the market.
M
Market Capitalisation
Refers to the size of a company and is calculated by multiplying the current stock price of a company by its total number of shares.
Market Capitalisation Weighting
In a market capitalisation weighted index, weights are assigned to individual constituent stocks based on its market capitalisation, and is determined by dividing its market capitalisation by the total market capitalisation of all the constituent stocks that make up the index.
Market Order
A type of order that instructs brokers and dealers to buy or sell immediately at the best market price available.
O
Over-The-Counter Market
An over-the-counter market is a decentralised market (in contrast to an organised exchange) where market participants trade directly with each other, usually with dealers acting as market makers.
P
Preference Stock
A type of stock that gives holders the first right of claim over common shareholders to dividend payments and a company's net assets, but does not have any voting rights.
Price Return Index
A price return index reflects only the price changes of the constituent stocks in a stock market index.
Price Weighting
In a price weighted index, weights are determined by the market prices of each of the constituent stocks, and is calculated by dividing its market price by the sum of all the market prices of the constituent stocks.
Price-To-Book Ratio
A financial ratio that measures a company's stock price in relation to its book value, which represents the total amount that would be left over if the company liquidated all of its assets and repaid all of its liabilities.
Price-To-Earnings Ratio
A financial ratio that measures a company's stock price in relation to its earnings per share. It denotes the amount an investor is willing to pay for every dollar of a company's earnings.
Primary Market
In the primary market, investors purchase newly issued stocks directly from a company, either through an initial public offering (IPO) or a follow-on public offering (FPO).
R
Realised Gain
A realised gain (or loss) occurs when the price of a stock rises (or falls) after an investor buys it, and the investor sells the stock to cash in on the profits (or losses).
Risk
The possibility that an investment's actual return differs from the expected returns.
S
Secondary Market
In the secondary market, stocks are bought and sold among investors without the involvement of the issuing company.
Shareholder
A person or entity that owns stocks of a company. Shareholders are entitled to a fraction of the profits the company generates and have a claim on net assets if the company goes bankrupt.
Stock
Stocks, also commonly known as equities, represent ownership claims on a company's net assets.
Stock Exchange
A stock exchange acts as a marketplace where stock buyers are connected with stock sellers, ensuring that transactions are streamlined and carried out more efficiently.
Stock Market
A stock market is a place where stocks of publicly traded companies are issued and traded. It consists of the primary market and the secondary market.
Stock Market Index
A portfolio of stocks constructed in such a way to give a fair representation of the performance of a given stock market, sector or investment theme.
Stop Order
A type of order that is often used by investors as a protective scheme. It has a specific price instruction (known as the 'stop price') and will not be filled until the stop price condition has been fulfilled.
T
Technical Analysis
A methodology that attempts to forecast the future direction of stock prices by analysing past market statistics, such as price movement and volume.
Total Return Index
A total return index reflects not only the price changes of the constituent stocks in a stock market index, but also the reinvestment of all dividends received since the index was incepted.
U
Unrealised Gain
An unrealised gain (or loss) occurs when the price of a stock rises (or falls) after an investor buys it, but the investor has yet to sell it. Also known as paper gains (or losses).
V
Valuation
The process of determining the value of an investment based on variables that are perceived to be related to future returns, or on the basis of comparisons with similar assets.
Volatility
The rate at which the price of an investment increases or decreases over a period of time. Investments with high volatility tend to exhibit larger price fluctuations as compared to investments with low volatility.