Online Share Trading
When trying their luck at online share trading , novices frequently become frustrated by the involved financial terms that appear on the majority of online trading sites. The list below is an explanation of complex financial terms from M to Z. For the first half of the list, see electronic trading.
MAR (margin): an indication of how effectively a company is able to turn its sales into profit. A margin can be worked out by dividing profit by turnover. Large margins are generally a good thing, while small margins are usually an indication that shares are incredibly sensitive to market fluctuations.
Market cap: this figure will give you an instant indication of the size and bearing of a company. To calculate market cap, simply multiply current share price by the number of shares a company has in circulation.
NYSE (New York Stock Exchange): the largest stock exchange in the world. The exchange was established over two centuries ago and today lists in excess of 3000 companies. The NYSE is one of the main exchanges used in online share trading, with other big players being the LSE (London Stock Exchange) and the TSE (Tokyo Stock Exchange.)
Option: a contract that gives the holder (the long) the right to buy or sell a specified asset at an agreed price on or before an agreed future date.
PBV (price to book value): this figure can be obtained by dividing the share price of a company by its net asset value per share. Lower PBV ratios are seen as a good thing.
PCF (price to cash flow ratio): this figure can be found by dividing a company's market cap by the cash flow. Lower PCF ratios are typically seen as better than higher values.
Portfolio: the collection of shares that is held by an investor or trader.
PSR (price to sales ratio): the company's current share price divided by its sales.
PW (profit warning): a warning issued by a company that believes its profits will be substantially less than estimated.
QR (quick ratio): the figure obtained by dividing all a company's assets by all of its debts. This will give you an idea of what would happen if a company suddenly had to be called upon to repay all of its debts. A company with a QR of less than 0.5 should be treated with caution.
REL STR (relative strength): a calculation of how well a share is performing in comparison to the rest of a sector or a specific online share trading market.
ROCE (return on capital employed): this figure is calculated by expressing the pre-tax profit of a company as a percentage of overall capital employed in producing that profit. ROCE is an indication of how much operating profit will be put back into a company to fuel future growth.
Sets: the electronic trading system of the Stock Exchange through which buyers and sellers of shares are automatically matched by computer. Sets are frequently used in online share trading.
Short position: the term used to describe an open sold futures or options position.
Spread: the difference between the bid price and the offer price of a share. This can indicate the expected profit that can be made from a deal.
Stamp duty: the government tax that is placed on all share purchases.
Strike price: the price at which an option holder has the right to buy or sell the asset underlying the option. This price will be specified in the option contract.
TO (turnover): turnover is the total sales of a company over a specific period.
Volatility: is an indication of how big or small typical jumps in share price are.