Arbitrage: This term comes about because of dual listings. Theoretically, the shares of a company traded on two different stock markets should have the same value. But this is not always the case. Hence it creates an opportunity for the nimble-footed investors to buy shares of the listed company in one market and then sell them in another at a higher price to profit from the price differential, a process known as arbitraging. Hence the term arbitrage.
Bear Market: A global crisis that leads to a prolonged plunge in world markets is a good example of a bear market. It is one characterised by prolonged decline in stock prices and low trading volumes. An investor holding the view that the market is in a bearish phase is known as a bear. One holding an opposing view is known as a bull.
Bear Market Rally: A bear market rally happens during a primary trend bear market. Some define it as an increase of 10% to 20%. Such a bear market rally usually takes place suddenly but is typically short-lived.
Blue Chips: These refer to ordinary shares of listed companies that are of high investment calibre, with the companies boasting not just a good track record of steady profit growth and dividend payments, but also a good management and a sound reputation.
Book value per share: (Book value of common equity – goodwill – most other intangible assets)/(Common shares outstanding at balance sheet date)
Bonus Issue (also referred to as stock split, scrip issue, capitalization issue and free issue): This involves giving bonus shares or free shares to existing shareholders based on the number of entitled shares held. If it is a one-for-five bonus issue, for example, then one bonus share will be given for every five shares held. While such an issue increases the total number of shares issued, it does not theoretically increase the value of the company.
Bull Market: A market marked by prolonged rises in stock prices and high trading volumes. This is the opposite market of bear market. Bull markets can stem from an economic recovery, an economic boom, or an investor psychology.
Buy-in: When an investor sells shares but fails to deliver them by due date, the stock exchange will have to carry out a repurchase of the securities. This process is known as a buy-in.
Call option: A contract under which the buyer has the right – but not the obligation – to buy a given quantity of an underlying asset at a predetermined price on or before a specified date. If the option or right is not exercised, the option expires and the buyer forfeits the money.
Capital gain: The gain from selling a stock at a price higher than the price at which it was bought. For example, an investor buys 1,000 shares of XYZ at $5 each for a total of $5,000. He then sells it later for $6,000. The capital gain is $1,000.
Cash flow per share: Cash flow from operations after taxes/Weighted average common shares outstanding.
Cash per share: (Cash – all claims prior to common)/(Common shares outstanding at balance sheet date)
Contra: A form of trading where the investor does not collect the securities he purchases or delivers the securities he sells, but settles the outstanding differences – which may be profits or losses – when he squares up the position within a stipulated period.
Corner Situation: a situation in which a single interest or group has gained control of a security such that the same cannot be obtained for delivery of existing contracts except at prices and on terms dictated by the interest or group.
Covered warrants (also known as structured warrants): An instrument which entitles the holder the right to purchase an underlying security from a third party (usually a financial institution) which is not the issuer of that security.
Cum all: Includes all declared entitlements. For example, a company declares a bonus issue and a dividend. When the stock trades cum all (CA), it means the buyer is entitled to both the dividend and the bonus issue. If only a dividend is declared, the stock trades cum dividend (CD) and if only the bonus issue is declared, it trades cum bonus issue (CB).
Current assets per share: (Current assets – all claims prior to common)/(Common shares outstanding at balance sheet date)
Debenture: Refers to a form of securities representing money borrowed by a company and charged in part or whole on the company’s property. Debentures bear a fixed rate of interest and the capital sum is normally repayable with a fixed term. They are usually traded in the same manner as shares.
Dividend Yield: Dividend x 100 / earnings per share. Investors who buy shares for dividend income use this as a measure of what the stock will reap for them in terms of dividends.
Dividend per share: Total annual dividends paid to common shareholders/Weighted average common shares outstanding
Earnings per share: It is the portion of earnings earned for each ordinary share. Let’s say a company makes a net profit of $4 million attributable to shareholders of the company and has 400 million issued shares. The EPS is $4 million/400 million shares which works out to an earnings per share of one cent.
Ex all: When a stock trades ex all, it excludes all declared entitlements. Ex all is the
opposite of cum all.
Exercise price: The price one has to pay when exercising his warrant or option into ordinary shares.
ETF: ETF is the abbreviation for Exchange Traded Fund. ETFs are open-ended investment funds listed and traded on a stock exchange. Such an instrument aims to track the performance of an index and provides access to a wide variety of markets and asset classes.
Force-sell: The sale of securities at a buyer’s risk when he fails to pay for the securities purchased earlier. This is the opposite of buy-in.
Going public: When a company issues its shares to the public for the first time
Insider trading: The illegal buying or selling of securities on information that is generally unavailable to the public. But this term also has a legal version, when corporate insiders—officers, directors, and employees – buy and sell stock in their own companies.
Interim dividend: A dividend paid during a company’s financial year, usually at the end of the first six months’ trading.
Initial Public Offering (IPO): Also known as a new share issue. A company’s first offering of stock to the public for subscription.
Issued capital: The capital for which shares have been issued; often in distinction to the nominal or authorised capital. The latter term means capital for which the issue of shares has been authorized.
Liquidity: The ability to convert assets to cash readily. So if a stock is illiquid, it means the volume of shares traded is thin. Loan stocks: These are debt securities. The company issuing the loan stock borrows from the loan stockholder a principal sum equivalent to the nominal value of the loan stock. The company undertakes to pay the holders of the loan stock a fixed amount of interest at a certain fixed rate at specific intervals, and to repay the entire principal sum owed at the maturity date of issue.
Margin account: A securities account with a broking company for the sole purpose of margin trading to allow buying of shares on margin. Margin trading allows one to buy more stock than he would be able to normally.
Margin call: Call for additional funds or shares so that the minimum acceptable level is restored. This is for margin account holders.
Marked to market: Refers to the status of an investor’s margin account at the end of each trading day. For example, if the margin deposit falls below the maintenance level, the investor will be required to put in more money to restore the level to its initial margin level. Another meaning refers to a company’s investment available for sale: this investment is marked to market to assess whether the investment has a fair value gain or a fair value loss.
Market capitalisation: The market value of a listed company, which is derived from the total number of shares issued multiplied by their market price.
Marketable equity securities: Marketable Equity Securities are equity, or common stock investments, held by one company in another. They are considered liquid investments as there is an active market for such securities. If the investment gives control of the company, the securities purchased are not considered marketable equity securities; instead are called long-term investments.
Market price: The price of shares traded.
Market-value weighted index: An index in which each component is weighted based on the counter’s market value.
Management Fees: The amount a fund pays to its investment manager for the investment management associated with the overseeing the fund’s portfolio.
Odd lot: The number of shares that is less than the normal unit of trading, known as a board lot.
Offer price: The price at which shares in an initial or secondary offering are offered to the public. Also known as the subscription price.
Options: A derivatives instrument where the buyer has the right to take up certain shares on specified terms within or at a specified time.
Over-the-counter trading: Trading in securities that are not listed on a stock exchange.
Preference shares: Shares taking precedence over other shares of the same corporation with regard to dividend and liquidation distributions. Premium: The amount by which a security is quoted or issued above its face value.
Price-earning (PE) ratio: It is the ratio of the current market price over earnings per share. If a share trades at 50 cents and the company’s earnings per share is five cents, then the PE is 50 cents divided by five cents, that is 10.
Private placement: A direct sale of securities between an issuer and an investor.
Profit-taking: A phrase describing the sale of a security which has risen in price.
Proxy: Written authorisation given by a shareholder to another person to vote on his behalf at a shareholders’ meeting.
Quick assets per share: (Cash + receivables – all claims prior to common)/(Common shares outstanding at balance sheet date)
Rally: A rise in stock price(s) after a period of decline or consolidation.
REIT: REIT stands for real estate investment trust. A REIT is a trust investing in primarily real estate assets, usually to generate income for unit holders of the fund. Such a trust allows individual investors access to real property assets, sharing the benefits and risks of owning a portfolio of property assets. It typically distributes income at regular intervals. The assets could range from commercial, retail and industrial to residential properties.
Rights issue: An issue to existing shareholders in a fixed proportion to those they already hold, at a given price. The shareholder is given an option to exercise or renounce his interest in the rights. If it is a 1-for-5 rights issue, it means that for every five shares held, the shareholder is entitled to buy one rights share.
Sales per share: Sales/Weighted average common shares outstanding
Securities: A term used to refer to all shares, debentures, notes and bonds.
Settlement: The final point in the trade process where after the trades are executed, securities and monies are delivered and exchanged by settlement date.
Short selling: The sale of shares which the seller does not own. This happens when the seller is anticipating a fall in the stock’s market price at which time he will buy to offset the borrowed shares. He makes a profit on the difference between his short sale and later purchase. Do note that different exchanges have dfferent restrictions governing short selling.
Structured Warrants (also known as covered warrants): A warrant which entitles the warrant holder a right to purchase a security issued by a 3rd party (usually a financial institution) which is not the issuer of that security. A specified amount of the underlying security shall be reserved or secured for the exercise of the warrant.
Taiwan Depository Receipt (TDR) : A Taiwan Depository Receipt (TDR) is a certificate registered in the holder’s name or as a bearer security giving title to a number of shares in a non-Taiwan-based company deposited in a bank outside Taiwan. These certificates are traded on the Taiwan Stock Exchange.
Takeover: A takeover occurs when the Offerer, either a person/company or a group of persons/companies acting in concert, seeks to gain voting control in another company (the Offeree).
Technical analysis: A method of forecasting price movements through trading volume and price studies. Technical analysts use charts and technical indicators to identify and project price trends.
Trustee: A person or entity who is responsible for another person’s or entity’s assets and/or investments.
Underwriter: The party which arranges for the issue of new securities. Underwriters guarantee full subscription by taking up all unsubscribed shares.
Unit trust: An investment where investors pool their funds together and invest in securities through a professional fund manager. Investors can participate in the trust fund by buying units from the fund manager. Each unit represents a fraction of the portfolio
Warrants: This instrument provides shareholders with the right, but not the obligation, to subscribe for a given number of ordinary shares in the company at a predetermined price known as the exercise price or the strike price.
Yield: Effective return to an investor from a particular security, expressed as a percentage on the current market price.