Below are a few common trading terms, some of which have been mentioned on this website.
| Term | Definition |
| Bearish | Describes an opinion or outlook in which one expects the general market or the price of a particular share to decline. A bear market is one where share prices across the entire market are generally falling. |
| Bullish | Describes an opinion or outlook in which one expects the general market or the price of a particular share to rise. A bull market is one where share prices across the entire market are generally increasing. |
| CFD | CFD refers to Contract For Difference. It is a contract between you and your CFD provider. You can’t trade CFD’s through an exchange or market, you have to transact with a CFD provider. A CFD offers the benefits of trading shares by mirroring the performance of the share or index, without physically owning them. It is similar to trading shares, but with some important advantages such as leverage, easy access to a wide range of global markets, the ability to short sell, etc. |
| Equities or Securities | Another term for shares or stocks. |
| Ex-Dividend |
This is the day (ex-date) in which the share reduces in price due to a dividend being paid. The reason for the reduction is that the company is distributing money to all the owners of the share on this day and no longer has this in their bank account. So the share usually reduces in price by the dividend amount, plus possibly more if it is franked. Investors who own a share on this day will receive the dividend, and those who are short must pay out the dividend. |
| Index or Indices | Provides a representation of the value of a range of securities that can be charted and used as a benchmark in regards to market performance. The most common indices in the Australian Market are the All Ords (made up of approx 500 shares), ASX 100, ASX 200 and ASX 300. The shares that make up these indices are based on market capitalisation rules set by the ASX. Every quarter the ASX re-assess the shares that belong to these indices and those that no longer meet the criteria are dropped from the index and new shares added that now meet the criteria. |
| Long | This is when you own a share, you have a long position in that security. Your view on the share is usually bullish and you buy the share with the goal of selling it at a higher price in the future. |
| Position | This is when you undertake a trade of any sort in the markets (long or short) – thereby establishing a position. |
| Pyramiding | Involves adding to a profitable position. The aim is to use the profits from an existing trade to purchase more and increase the size of the trade in successively smaller increments. |
| Short (also called short selling) |
This is when you have a bearish view on a share and you sell a share that you do not own with the goal of buying it back at a lower price in the future. The shares are borrowed from another party who owns them and sold with an obligation to replace the sold shares in the future when they are bought back – closing out the short position. Shorting is usually only available on the ASX 200 stocks through either a full service broker or derivative instruments such as options and warrants or contracts for difference (CFDs). You can learn more about short selling by viewing this trading article on “How will you handle a bear market?” |
| Sector | A group of shares who have common characteristics. Shares are often grouped together into different sectors based on their company’s business. For example, the healthcare sector, telecommunications sector, finance sector, energy sector, etc. |
| Stop Loss |
This is a pre-determined price at which a trader will exit a position. The price is placed away from the current market and an order can be placed in the market that is activated if the share trades at that specified price point. Stop losses are one of the main ways for a trader to manage risk, with the aim of keeping losses small and letting profits run. |