Top 15 most searched-for share trading terms and definitions

Jargon can be a major hurdle for share trading newcomers, so it's helpful to clarify any confusing terminology. There are a number of acronyms and unusual phrases used within the industry, which can be difficult to understand.

Traders are always coming up with new acronyms, so it’s easy to see why many people find financial market terminology confusing. If you want to develop your interest in financial markets, familiarising yourself with the language and terms used regularly can be useful.

Analysing keyword searches, bank and investment company websites and digital glossaries, we’ve compiled a list of the most frequently searched and relevant stock market-related definitions. Among the most common phrases were acronyms like ETF and IPO, and search terms such as ‘bull market meaning’ and ‘dead cat bounce’.

Here are fifteen of the most important and helpful share trading terms for both beginners and seasoned investors...

ETF stands for exchange-traded funds, which is basically a fund that tracks a specific index (like the ASX 200 for instance) and aims to replicate the performance of the market. In short, if the ASX 200 goes up, then your investment in an ETF that tracks that index is likely to go up too. Conversely, if the exchange is performing badly, then your investment will likely take a similar hit.

In investing and stock market trading, IPO stands for ‘initial public offering’. An initial public offering is made by a company that is transitioning from private to public. What are they offering? Well, they’re offering the first publicly available shares in their company. 

Companies issue IPOs to raise capital, promote growth, raise their public profile, or to pay off debts, which is why it’s worth noting why a company is releasing an IPO. Is it an opportunity or a red flag – if they’re using it to fund the repayment of debt, that’s not usually a great sign.

Brokers are either individuals or brokerage firms that facilitate share trading between investors and a securities exchange. They’re the middleman. 

You can purchase shares as an investor through:

• A stockbroker 
• A brokerage firm

An online broker or share trading account

‘Bull market’ is a term that will often come up in the share trading and stock market world. Bull markets are characterised by rising share prices. For example, when stock prices rise by 20% after two declines of 20% each, it is said to be a bull market (as opposed to a bear market). 

During bull markets, investors may choose to buy more shares in hopes of riding the upward trend from the beginning of a bull market, then selling them off for profit once the trend begins to dip. Of course, it’s a gamble as to when the bull market will end.

‘Bear market’ is a term that refers to markets experiencing prolonged drops in prices – the antithesis to bull markets. For example, a bear market is called when stock prices experience a 20% or more fall from their most recent high. 

During bear markets, investors may choose to purchase more shares when the price is low, in hopes of capitalising on future price or index increases.

Day trading is an investment strategy that involves buying and selling stocks within the same day, in order to take advantage of share price movements. 

For example, a day trader’s morning may consist of purchasing shares in one company, before selling said shares just after lunch.

The term whales, in the stock market world, refers to the big players who are said to have the financial heft to influence, or manipulate, the market. Investment whales can be individuals or companies with lots of investment capital.  

The nickname ‘whales’ comes from their ability to make a big splash in the market whenever they make large investments or sell in large quantities.

Averaging down your investments means buying more shares (of a stock you currently hold) when the market price falls. This strategy is an attempt to lower the average cost of all the shares held and is a similar philosophy to dollar-cost-averaging.

In the stock market world, tanking refers to when a stock is performing poorly or its price is declining over a period of time. 

When a stock tanks, investors may consider averaging down their investments, for example.

One of the stranger phrases in the stock market vernacular is ‘dead cat bounce’, which basically means the slight recovery in share prices which is often seen after a big crash. The recovery (or ‘bounce’) comes from speculators who buy in, post-crash, in order to cover their positions. 

The origins of ‘dead cat bounce’ are said to be in the famous Wall St phrase, “even a dead cat will bounce if it falls from a great height”.

Dividend yield means the percentage of a company’s share price it pays out in dividends each year. It’s basically a ratio that investors use to evaluate how much potential profit they might get in dividend returns for every dollar they invest in a company. 

You can calculate the dividend yield of a company by dividing the annual dividends paid per share by the price per share. 

The annual dividend payout of a company can usually be found in a company’s annual report, or by finding their most recent dividend payout and multiplying to find the annual amount.

When people in the stock market world use the phrase ‘to the moon’, they’re not referring to the Frank Sinatra song. Rather, ‘to the moon’ means the price of a stock is rising continuously. It’s the opposite of tanking.

ADR stands for American depository receipts, which are used by foreign companies listed on US stock exchanges. ADRs are a form of equity security that offer US investors the opportunity to gain investment exposure to non-US stocks without the complex task of dealing with foreign stock markets.

They’re essentially a different type of investment, where you don’t invest directly in shares. Rather, the ADRs represent the foreign company’s shares.

Arbitrage is when you simultaneously purchase and sell the same asset in different markets, with the express aim of profiting from small differences in the asset’s listed price. The price differences only exist as a result of market inefficiencies, but arbitrage exploits these, as well as resolves them.

A margin account is a type of brokerage account where the customer borrows money (a margin loan) from the broker to invest in stocks or other asset classes. 

Margin accounts are risky for two reasons. Firstly, the borrowers are charged a periodic interest rate on the loaned cash and secondly, the use of this type of leverage can not only magnify profits but make losses worse too.

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If you’re new to share trading, we recommend having a browse through our share trading guides, where you’ll hopefully find nuggets of wisdom, like explanations of some other trading terms we didn’t cover in this piece.

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