Advance/Decline Ratio
This is calculated by dividing the difference between the total number of shares up in one day, and the total number of those down in the same day, by the total number of shares that were active on that day.
Accumulation
Refers to a sideways trend on a chart following a prolonged bear market, when knowledgeable investors are buying undervalued shares from ill-informed and gullible sellers. Areas of accumulation are frequently followed by price rises.
Arbitrage
A trading strategy designed to take advantage of small differences in price of a security traded on different markets, or of price differentials between physical and derivatives markets.
At Best
An instruction to a broker to purchase or sell securities at the most advantageous price available, without imposing a limit.
At-the-money
A term used by options traders denoting that the strike price of an option and the current price of the underlying asset are the same.
Attributable profit
The profit available for distribution to shareholders.
Authorised Share Capital
The amount of capital that a company is authorised to issue in terms of its memorandum
Averaging
Buying more of a share already held when the price has fallen in order to reduce the average price of the total holding.
BA Rate
The Bankers Acceptance Rate is the rate at which banks lend money for a short period of time, usually 3 months. This is usually to large institutions.
Bar chart (bar/volume chart)
A chart in which the high, low, closing price and trading volume of a security are depicted by means of a series of vertical bars. This is one of the basic charts used in technical analysis.
Basic charge
Flat charge per transaction that is additional to brokerage charges on the purchase and sale of shares, other than fixed-interest debentures that carry no basic charge.
Bear
A seller of shares he does not own, in the hope that the price will fall and he can then buy the shares, before the date on which he must deliver the script, at a price below that which he sold them at, and in the process realize a profit.
Bear market / run
A persistent and prolonged downtrend in prices on the market.
Bid
The price a potential buyer is willing to pay for a financial asset.
Blue Chips
Shares in companies that are usually among the largest on the
Stock Exchange and have shown a consistently strong growth
in profit year after year. They are named after the most valuable
chips in Poker, which are blue. Most portfolios should include some Blue Chips although even they are susceptible to a drop in value if the market as a whole takes a dive.
Black Chips
This is a term unique to the South African market which refers to the growing number of companies on the stock exchange that are under Black management.
Bond Market
The Market where Bonds or gilt-edged stocks (Gilts) are bought and sold. Also known as the Capital Market.
Breakout
A term used by chartists to denote that a sideways formation has ended because of prices moving decisively away, either up or down.
Brokerage
Commission charged by a broker for the purchase or sale of shares. The rate may change from time to time.
Bull
Someone who is optimistic about the outlook of a market, believing that prices will rise.
Bull market
A persistent and prolonged up trend in prices on the stock market.
Buy signal
An indication on a chart suggesting that the security should be bought.
Buying on margin
Shares that are purchased using credit offered by some brokers, usually with a limited time to repay in cash.
Call
A type of option giving the holder the right, but not the obligation, to purchase a security or commodity at a specified price on or before a specified date.
Call money
The price paid for a call option, the rate depending on the type of stock, its performance history and the period of the contract.
Call option
The right to buy or ‘call’ certain shares within a certain time or ‘option period’ at a certain price or ‘striking price’. By paying a small premium per share the investor buys the right to demand delivery of the shares anytime during the duration of the contract period and at the price which was fixed at the time the call was made.
Capital appreciation
The increase in the value of a portfolio or a share as a result of a rising stock market.
Capital Market
See “Bond Market”
Candlestick charting
A method of technical analysis originating in Japan, and involving the study and charting of the relationship of the opening, high, low and closing price for each trading session.
Cash flow
The annual net profits retained in a business, plus the depreciation provision. Useful in estimating a company’s projected financial situation and dividend potential.
Cash transaction
The delivery of shares with payment due on the next settlement date.
Chart
The historical price performance of a share presented in graph form that can be analysed to determine the direction of future movements in the price.
Chartist
One who bases his investment decisions largely on information derived from the study of charts.
Closing price
The price achieved during the last deal of the day for a particular share.
Confirmation
Refers to the phenomenon by which the signal of one indicator is confirmed by another indicator.
Continuation pattern
This is a contra-trend or sideways formation that will ultimately be resolved in the same direction as the original trend.
Contrary opinion
An opinion regarding the prospects for the market that runs counter to popular perceptions.
Correction
A term used by chartists to denote a temporary movement in the opposite direction to the primary trend.
Covered option
A type of option in which the writer (seller) owns the underlying asset, and is therefore in a position to make delivery if the option is exercised.
Convertible debenture
A debenture with the right to convert, within a specified time, all or part of the holding at a predetermined price.
Convertible note
A basic fixed interest loan with the right to exchange or ‘convert’ all or part for ordinary shares at a predetermined price within a specified period.
Cumulative dividends
In case of the suspension of dividends on cumulative preference shares, these are accumulated year by year and must be paid before dividends on ordinary shares can be paid.
Current assets ratio
A company’s total current assets divided by its total current liabilities expressed as a ratio
(e.g. 3 : 1)
Cycle study
An attempt by technical analysts to identify a period of regularly occurring lows on a stock chart.
Debenture
Money injected into a company as a loan. Debenture holders, who can transfer their holdings, are creditors of the company with priority rights regarding capital and interest. Even if the company is not making profits, interest on debentures must be paid.
Deferred shares
Shares where the payment of dividends is deferred either for a fixed period or until the total dividends on ordinary shares reach a certain amount.
Derivatives
A class of financial securities whose prices are ‘derived’ from underlying assets such as shares, commodities, currencies etc. Common examples are futures and options.
Development capital market
A specially created section on the JSE enabling companies to be listed which are unable to comply with the stringent requirements for a listing on the Main Board.
Discount
The amount by which a newly listed security is quoted below the offer price. Also pertains to a share that stands at a discount to net asset value when the market price is lower than the balance sheet value per share.
Distribution
Refers to a sideways trend on a chart following a prolonged bull market, when knowledgeable investors are selling overvalued shares to ill-informed and gullible ones. Areas of distribution are frequently followed by price declines.
Diversification
The spreading of a share portfolio over a variety of companies operating in different fields.
Dividend
The payments made to shareholders out of a company’s profits after tax and prior charges have been paid.
The various descriptions of dividends are:
Maiden dividend - The first dividend declared.
Interim dividend - The dividend declared during the financial year.
Annual dividend - The sum of all dividends declared during the financial year.
Final dividend - The last dividend declared during the financial year.
Dividend yield
A measure of value of a share computed by dividing its current price in cents by the annual dividend (also in cents), and expressing the result as a percentage.
Double bottom
chart formation resembling the letter W, in which price declines stop twice at or near the same lows.
Double top
A chart formation resembling the letter M, in which price rises stop twice at or near the same highs.
Double option
The right to both buy or sell specified securities at a specified price anytime during the currency of the contract.
Dow Jones Industrial Index
An index of 30 top American industrial corporations traded on Wall Street. A feature of this Index is that it is not weighted for market capitalisation of its component shares.
Dow Theory
A technical analysis theory involving the classification of trends into primary, secondary and tertiary. It also includes the confirmation concept, an understanding of market psychology and the importance of values.
Earnings per share
Taxed profit less preference and minority shareholders’ interest, divided by the number of shares issued.
Earnings Yield
A measure of the profits earned by a company compared with its share price. It is calculated by dividing the earnings per share in cents by the current share price (also in cents), and expressing the result as a percentage.
Elliott Wave Theory (EWT)
A sophisticated and complicated system of analysing chart waves first devised by R N Elliott
Equity
Ordinary shares of a company
Equity share capital
Funds invested in a company plus the profits that have been put back into the company.
Ex-Dividend
Dividends are paid on a share on a particular day after the dividend declaration has been made. Shareholders who own those particular shares at that time will receive the dividend payout. The day after the this deadline is when the share is said to “go ex-dividend”. That means that if you buy the share then that will not be entitled to that dividend although of course if you still own that share at the next deadline that you will then be entitled to that dividend. Shares are usually worth less when they go ex-dividend.
Expiry date
The last date on which an option may be exercised or on which a futures’ contract matures.
Exponential moving average
This is a type of moving average used in technical analysis in which greater weight is attached to recent readings than to distant ones. The resultant line tends to be closer to the closing price line than in the case of a normal moving average, and so gives ‘earlier’ signals.
Exposure
Exposure refers to the size of your investment in a share or share portfolio and to the level of risk that you are taking. If you have all of your money invested into one share you have a high exposure to that share and hence a potentially high exposure to risk.
Fibonacci
An Italian mathematician who formulated a series of numbers based on adding the previous two in the series. Elliott Wave theorists attach considerable importance to ratios derived from these numbers (eg 5, 8, 12, 21,34,..).
Flag
A chart formation shaped like a flag, the breakout from which is likely to be in the same direction as the immediate preceding trend.
Fundamental analysis
The weighing up of a company’s merits based on an analysis of it’s past history, present trading results, future prospects, strength of management and general cyclical and economic conditions in the field in which it operates. The methods of fundamental analysis can be contrasted with those of technical analysis or ‘charting’ which are devoted exclusively to predicting price movements of shares or other tradeable assets.
Futures contract
A contract embodying an obligation to buy or sell a specified quantity of a commodity, currency or security at an agreed price on a predetermined date.
Gap
A void on a bar chart resulting from the lowest price being higher than the previous high in an uptrend, or the highest price being lower than the previous low in a downtrend.
Gearing or leverage
The ratio of prior charges, such as borrowed money, to share capital.
Gilt edged stocks “Gilts”
Stocks issued by governments or government-sponsored organisations, such as Eskom and Iscor, and stocks issued by leading municipalities. They guarantee to pay the holder a fixed rate of interest. They are considered to be a low risk investment.
Gilt Funds
Unit trusts that invest in both the “Bond Markets” and the “Gilts Markets” with a view to providing both capital growth and moderate income. They are usually of a higher risk than “Income Funds”.
Glamour stocks
A share that becomes a market favourite because of spectacular developments within the company, or because the company operates in a field in which spectacular developments are expected, and is thus heavily traded at rising prices in anticipation of rapid growth in earnings.
Growth stocks
Shares that are expected to pay ever-increasing dividends because of rising profits, and thus constantly increase in market price.
Go public
A colloquial expression referring to the process by which a company’s shares are listed on a stock exchange.
Handling fee
Charge made, normally by banks, for accepting or handling share certificates on behalf of clients.
Head and shoulders
A common reversal pattern on a chart, characterized by three peaks, of which the middle is the highest in the case of a top, and the lowest in the case of a bottom.
Hedging
The use of the derivatives markets to insure oneself against unfavourable price movements in the underlying security.
Income Fund
A Unit Trust that invests in “Money Market” instruments and the “Bond Market”. As such it aims to provide high interest and only moderate, if any, growth.
Index
An ‘average’ of the closing prices of a particular segment of the market. Indices may or may not be weighted according to the market capitalization of the component companies.
Inflation
The rate at which prices rise. The cost of a number of goods and services (called a basket), supposedly what a typical citizen uses, are recorded each month. Inflation for a given month is the percentage that this basket has increased in price from the previous years value. In South Africa three types of inflation are referred to, namely:
Overall Inflation:
The total basket of weighted goods and services
Underlying Inflation:
The result of excluding interest rates from overall inflation
Core Inflation:
The resultant basket after eliminating interest rates, some fresh foods, VAT and local government rates
Insider trading
Trading carried out by persons with access to company information that others do not yet possess. The practice is illegal in most countries, but the relevant laws are difficult to enforce.
Interest Rates
The rate at which money is loaned or borrowed. The man in the street will borrow money at a level that will be fixed to the Prime Rate. Banks borrow money from the Reserve Bank at the REPRO rate.
Investment
The placing of funds at risk in the hope of gain. Generally viewed in the following way: -
Long term:
An investment made on the basis of a company’s prospects over a period of two years or more.
Medium term:
Six months to two years.
Short term:
Six months or less.
In-the-money
A ‘call’ option in which the strike price is below that of the underlying security; a ‘put’ option in which the strike price is above that of the underlying security.
Intrinsic value
The difference between the strike price and the price of the underlying security in an “in-the-money option”.
Investment trusts
Companies, the nature of whose business is that of investing in other companies. They do so by purchasing shares in these companies through the stock market. Their capital is fixed, and shares in these investment trust companies are listed on the Stock Exchange. Investors can buy or sell shares in such companies like they do with any other listed company. Also known as ‘closed-ended trusts’.
Island
A top reversal formation ‘isolated’ because of gaps appearing in the final phase of the preceding up trend, and also in the downtrend immediately after the down side breakout. Occasionally seen in bottom reversals patterns.
Issue share capital
The amount of share capital actually issued by a company.
Junior Boards
This term dates back to the time when share prices were written up on boards for traders to see. Companies that were written up on those boards were listed in sectors of the JSE where they weren’t required to meet the same stringent requirements needed to qualify for the main board. Examples of the junior board are the Venture Capital Market, Development Capital Market, Development Stage and Financial Redevelopment.
Key reversal
This important reversal pattern climaxes, for example, a prolonged up trend; on a given day the market rises to a new intra-day high, followed by unusually high-volume selling that depresses the price to below the previous day’s close, that is, at a loss for the day as a whole. A similar phenomenon is sometimes seen in respect of bear-to-bull reversals.
Leverage
See Gearing
Limit buyer
A buyer who places an order with his broker stipulating a limit to the price at which shares are to be bought.
Line chart
The simplest type of stock market chart in which only one price (usually the close) is recorded for each traded period, and these points are connected by a continuous line.
Long
This term refers to the purchase of a commodity, currency or financial security in expectation of a price rise.
Margin
On the securities markets this term refers to the initial ‘down-payment’ or ‘deposit’ required when buying or selling short.
Marginal mine
A mine whose profit falls below some predetermined level - in other words, one that is only just paying its way.
Marketability
A share which is frequently traded and can therefore be bought and sold easily.
Market Capitalisation
The market capitalisation of a company is calculated by multiplying the number of shares in issue by the price of the share. “Big market cap” companies tend to be more stable in tough times whereas ‘small market cap” companies are usually riskier but can show spectacular profits.
Marketable Securities Tax
Government imposed tax on the purchase of all marketable securities, except listed debentures. The rate of tax is payable on the consideration for which such securities are purchased. An exemption applies in respect of the purchase of marketable securities issued by the government, local authorities and quasi-government institutions.
Micro-fundamentals
Those fundamentals influencing individual shares, for example, earnings, net asset value, debt/equity ratio.
Middle market price
The average price of a share extracted from the highest and lowest sale prices on a particular day.
Minority shareholders
Shareholders who, individually or collectively, own fewer shares than the controlling group.
Momentum
A type of chart showing the rate at which a price is rising or declining. Changes in momentum frequently precede changes in the price trend itself.
Money Market
The market in which Negotiable Certificates of Deposit (NCD’s) and Treasury Bills are bought and sold.
Moving average
Calculated by adding the closing prices for a number of consecutive trading sessions and dividing this total by the number of sessions. Connecting these points on a chart produces a line in which minor fluctuations are eliminated. Chartists glean important information from the relationship between the closing price and its moving average.
Naked option
The sale of a ‘put’ or ‘call’ option by someone not owning the underlying asset.
Neckline
A line connecting the lows of the head in a head and shoulders top, or the highs in a head and shoulders bottom.
Net Asset Value (NAV)
The value per share arrived at by dividing the net assets of the company, after deduction of all prior charges, by the number of ordinary shares issued.
New issue
Initial issue of shares in a company by a public offer, a private placing, a tender bid or an exchange of shares for those of one or more other companies.
NCD’s
Negotiable Certificates of Deposit (NCD’s) are fixed deposit receipts that are issued by commercial banks.
Nil Paid Letters (NPL’s)
These are tradeable shares that are listed for just a short time. Owners of NPL’s have the right to buy the share associated with them on a certain date at a certain price.
Non-confirmation
Failure of one technical indicator to confirm the signal of another.
Nominal or par value of shares
The value given to shares when they are created. It has nothing to do with the true value of shares and usually has no relationship to the market price.
Offer
The price a potential seller is willing to accept for an asset.
On-balance volume (OBV)
A cumulative volume line computed by adding the volume for a given trading session if prices rise, and subtracting it if prices decline. Changes in trend of the OBV are said to precede changes in price.
Options
Financial instruments conferring on the holder the right, but not the obligation, to buy or sell an underlying security at a fixed price on a predetermined date.
Ordinary shares
Shares that give the shareholder part ownership of the company in proportion to the number of shares held, and entitle him to share, by way of dividends, in the profits.
Ordinary share capital
The capital of a company represented by the number of its ordinary shares.
Oscillator
A type of chart in which the parameter concerned moves up and down in relation to a zero-value base line.
Out-of-the-money
A ‘call’ option in which the strike price is above that of the underlying security; a ‘put’ option in which the strike price is below that of the underlying security.
Overbought
Refers to a market in which prices have moved up too rapidly in relation to the underlying fundamentals, and may therefore be vulnerable to a downward correction.
Oversold
Refers to a market in which prices have moved down too rapidly in relation to the underlying fundamentals, and may therefore be vulnerable to an upward correction.
Par value
See Nominal value.
Payability
The percentage of a reef sampled which, in the light of current cost levels, is payable to the mine.
Pennant
A chart formation shaped like a pennant, the breakout from which is likely to be in the same direction as the preceding trend.
Portfolio
All the securities owned by an investor.
Preference shares
Shares that bear a fixed annual rate of dividend with a prior right over all ordinary shares in the distribution of dividends from annual profits; and a prior claim to repayment of capital on a winding-up of the company. Unless such shares are specifically defined as non-cumulative, the company is liable for any arrears of preference dividends.
Preference shares are often converted into ordinary shares at some future date. They can also be redeemable so that shareholders can get their capital repaid at a stipulated date.
Preference shares - Cumulative:
Shares entitled to receive their fixed dividend for each financial year, regardless of whether or not the company has made a profit. When no profits are made, the dividend must be paid out of the profits of a subsequent year, before any dividend is paid to ordinary shareholders.
Preference shares - Participating:
Shares with an additional inherent right to participate in further profits after all shares have been satisfied as to their dividend allocations.
Preference shares - Redeemable:
Shares that can be redeemed by the company either at fixed dates and prices, or on certain specified terms at the discretion of the board.
Price earnings ratio
A measure of value of a share, computed by dividing the share price in cents by the earnings per share, in cents. e.g. If the earnings per share are 10 cents and price 100 cents, then the price earnings ratio is 10 : 1. The ratio is in fact, the reciprocal of the earnings yield.
Primary trend
A Dow Theory concept referring to the major trend of the market, either up or down, which often lasts several years.
Prime Rate
The Prime overdraft rate (or prime lending rate) is the rate at which banks will lend to their best customers. “Riskier” customers will be lent money at Prime plus 4, 5 or more percent.
Point and figure chart
A system of charting in which price rises and falls are denoted by successive vertical columns of X’s and O’s. This method is unique in that it takes no account of time.
Prospectus
A company must issue a prospectus before listing for the first time on the JSE. This document will contain specified information on a range of subjects including its history, profit forecasts, share ownership and directors.
Put
A type of option giving the holder the right, but not the obligation, to sell a security or commodity at a specified price on or before a specified date.
Rally
A upward movement when the primary trend is down.
Rand Hedges
These are shares in companies which, because they are strong exporters or have operations oversees, are protected to an extent from the effects of a drop in value of the Rand.
Reaction
A secondary downward movement of prices when the primary trend is up.
Relative strength chart
A line chart computed by dividing the closing price of one share or index by another.
Repro Rate
This is the rate at which the Reserve Bank lends money to the banking sector. Varying this rate is one of the methods used by the Reserve Bank attempts to control the economy.
Resistance level
A price level at which sellers may be expected to prevent a further rise in prices.
Reverse take-over
Injection of assets into a company greater than its existing resources, in exchange for new shares, thus placing the control in the hands of the vendor of such assets.
Reverse yield gap
A situation where the yield on equities is lower than that on bonds. Traditionally yields on equities are higher than on bonds. The differential is called the ‘yield gap’.
Rights issue
A method employed by listed companies to raise more capital through the sale of additional shares to shareholders at a price usually below that of the current market. Existing shareholders will be offered the opportunity to by these shares before they are listed on the market.
Saucer top or bottom
A gently rounded reversal pattern on a chart.
Secondary trend
A Dow Theory concept referring to a movement, often lasting several months, in the opposite direction to the primary trend.
Scrip
Share certificates
Securities
In a market context, this is a general term covering all forms of tradeable instruments, such as shares, gilts and debentures.
Sell signal
An indication on a chart strongly suggesting that selling action is required.
Selling short or “bear transaction’
The selling of shares that you do not actually own in the hope that you can buy them for a lower price before they are due for delivery. All such ‘bear transactions’ have to be disclosed, and sufficient funds lodged with the broker.
Sentiment
This can best be described as the ‘mood’ on the exchange at any given time. Hence any information released about interest rates, inflation or movements on Wall Street is said to affect the ‘mood’ or ‘sentiment’ on the JSE.
Share BuyBack
This is when a company (which is a legal entity) purchases it’s own shares.
Share capital
Capital of a Company represented by different types of shares.
Share certificate
The document issued to a shareholder by the company certifying ownership of a specific number of shares in the company.
Share split
Refers to the process of breaking down high-priced shares into multiple smaller units with a lower price to render them more marketable and affordable.
Short
In the futures market, to be short implies holding a contract to sell a commodity, currency, or financial instrument. On the stock market, however, to be short implies that a speculator has sold shares he does not own, borrowing the stock to deliver to the buyer. He hopes to buy these shares back at a lower price before they must be returned.
Sideways movement
A slight, continuing, up and down movement in the share price, without any definite trend becoming apparent.
Signal
An indication on a chart that buy or sell action should be taken.
Speculation
Refers to the buying or selling of securities to realize a profit in the short term.
Spot price
A term used by derivative traders to denote the price of the underlying security, currency or commodity available for immediate delivery.
Spread
The difference between the bid and offer price.
Stag
A person who applies for shares in a new company with the intention of selling them immediately dealing commences, normally at a profit.
Stale bull
A person who holds onto shares longer than he expected to because they have not reached the price at which he hoped to sell them.
Stochastic
An oscillator that measures the position of the closing price compared with its high and low over a chosen period.
Stocks
Ordinary share capital can be reflected as units, stock or as shares, all three terms being synonymous with each other.
Stocks and shares
The capital of a company reflected in two distinct ways; either as a fixed dividend (preference) share, or as a fluctuating (ordinary) share.
Stop-loss order
A standing instruction to a broker to close out a position should a certain price level be breached.
Straddle
An options trading strategy involving the simultaneous purchase of both a call and a put on the same underlying security with the same strike price and exercise date.
Strike price
The predetermined price at which an option may be exercised (also known as the ‘exercise price’)
Support level
A price level at which buyers may be expected to prevent a further decline in prices.
Technical analysis
The study of past price behaviour on the market in an attempt to gauge future prospects. The procedure is also called charting.
Time value
The amount by which an option’s premium exceeds its intrinsic value.
Total profits or ‘consolidated’ profit
The total or consolidated profits divided by the total capital employed and shown as a percentage. This reflects the return earned by a company on its resources.
Trading range
A more or less horizontal chart formation with prices locked between support and resistance levels.
Trend line
A line on a chart connecting three or more high points, or three or more low points.
Treasury Bills
These are fixed deposit receipts that are issued by the government and are usually for short maturity periods (eg. 3-months).
Triangle
A chart formation characterized by declining tops and rising bottoms.
Underlying security
The index, share, commodity or currency on which derivatives trading is based.
V-bottom or top
A reversal pattern characterized by an abrupt change of trend without an intervening area of distribution or accumulation.
Volatility
Refers to the range of the swings from peak to trough on a chart.
Volume
Refers to the total number of shares or other securities traded during a given period.
Volume price trend (VPT)
A cumulative line computed by adding the volume multiplied by the percentage price change if the price rose, and subtracting it in the case of a price decline, during a given trading session. The VPT may be regarded as a measure of the ‘enthusiasm’ behind a price move.
Wedge
A type of triangular formation on a chart in which both the upper and lower borders slope in the same direction, but the one more so than the other.
Writer
One who sells a ‘put’ or ‘call’ option
Yield
Reflected in the following ways: -
Dividend Yield:
The ratio of the annual dividend to the market price of a share expressed as a percentage. This is a vital factor to be considered in evaluating shares. The lower the yield the more expensive the share generally is.
Earnings Yield:
The ratio of net earnings per share to the market price expressed as a percentage.
Gold Yield:
The running average amount of actual metal produced from the rock that is blasted out underground and crushed in the surface mills. It is expressed in grams per ton milled.
Income Yield:
The ratio of annual dividend or interest paid on preference shares, debentures or notes to the market price expressed as a percentage.
Zero sum game
Refers to the phenomenon on the futures market by which all long positions are matched by equivalent short ones, so that the total profits earned by ‘winners’ exactly equals total losses suffered by ‘losers’ (ignoring brokers’ commissions).
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