Financial Terms

This is a list of common and not so common financial terms.

Bear Market

What does WALE mean?

Share: This is a unit of ownership in a company that represents a claim on part of the company’s assets and earnings.

Dividend: This is a payment made by a company to its shareholders out of its profits.

IPO (Initial Public Offering): This is the process by which a privately-held company sells shares to the public for the first time, becoming a publicly-traded company.

ASX (Australian Securities Exchange): This is the main stock exchange in Australia, where shares of publicly-traded companies are bought and sold.

Market capitalization: This is the total value of a company’s outstanding shares, calculated by multiplying the number of shares by the current market price per share.

Bull market: This refers to a market where prices are rising and investors are optimistic.

Bear market: This refers to a market where prices are falling and investors are pessimistic.

Blue chip: This refers to a well-established and financially stable company with a strong track record of growth and profitability.

Index: This is a statistical measure of the performance of a group of stocks, used as a benchmark to compare the performance of individual stocks or the market as a whole.

Broker: This is a person or firm that acts as an intermediary between buyers and sellers of securities, facilitating the buying and selling of stocks on behalf of clients.

Earnings per share (EPS): This is a company’s net income divided by the number of outstanding shares, indicating how much profit each share represents.

Price-to-earnings ratio (P/E ratio): This is a company’s stock price divided by its earnings per share, indicating the multiple of earnings that the stock price represents.

Market index fund: This is a type of investment fund that tracks the performance of a specific stock market index, such as the S&P/ASX 200 in Australia.

Insider trading: This refers to the practice of buying or selling shares based on non-public information, which is illegal in Australia.

Short selling: This is the practice of selling shares that the seller does not own, with the intention of buying them back later at a lower price.

Margin trading: This is the practice of borrowing money from a broker to buy stocks, with the intention of paying back the loan with the profits from the stock sale.

Stop-loss order: This is an order to sell a stock if it falls below a certain price, in order to limit potential losses.

Limit order: This is an order to buy or sell a stock at a specific price or better, in order to execute the trade at the desired price.

Volatility: This is a measure of how much the price of a stock or the overall market fluctuates over time.

Derivatives: These are financial instruments that derive their value from an underlying asset, such as stocks or bonds. Examples of derivatives include options and futures contracts.

Capital gain: This is the profit realized from the sale of a capital asset, such as stocks or real estate.

Capital loss: This is the loss incurred from the sale of a capital asset for less than its purchase price.

Brokerage fee: This is a fee charged by a broker for executing a trade on behalf of a client.

Bid price: This is the highest price that a buyer is willing to pay for a stock.

Ask price: This is the lowest price that a seller is willing to accept for a stock.

Spread: This is the difference between the bid and ask prices of a stock.

Day trading: This is the practice of buying and selling stocks within the same trading day.

Penny stock: This is a stock that trades at a low price, typically less than $1 per share.

Options: These are financial contracts that give the buyer the right, but not the obligation, to buy or sell a stock at a specific price within a certain period of time.

Futures contract: This is a financial contract that obligates the buyer to purchase a stock at a specific price on a future date.

Leverage: This is the use of borrowed capital to increase the potential return on an investment.

Hedge fund: This is a type of investment fund that uses various strategies, such as leverage and short selling, to generate higher returns.

Market maker: This is a person or firm that provides liquidity to the market by continuously buying and selling stocks, maintaining a bid-ask spread.

Liquidity: This is the ease with which an asset can be bought or sold without affecting its price.

Portfolio: This is a collection of investments held by an individual or institution, such as stocks, bonds, and cash.

Diversification: This is the practice of spreading investment risk across different assets or industries, in order to reduce the overall risk of the portfolio.

Asset allocation: This is the process of dividing an investment portfolio among different asset classes, such as stocks, bonds, and cash, in order to achieve the desired level of risk and return.

Risk tolerance: This is an investor’s willingness to take on risk in pursuit of higher returns.

Risk management: This is the process of identifying, measuring, and controlling the risks associated with investments.

Financial advisor: This is a professional who provides advice and guidance on financial planning and investment decisions.

Financial planning: This is the process of setting goals and creating a plan to achieve them, with the use of financial strategies and products.

Mutual fund: This is a type of investment fund that pools money from multiple investors and uses it to buy a diversified portfolio of stocks, bonds, and other assets.

Exchange-traded fund (ETF): This is a type of investment fund that is traded on a stock exchange, providing investors with diversified exposure to a specific market or sector.

Stock split: This is a corporate action in which a company increases the number of its outstanding shares by issuing new shares to existing shareholders.

Rights issue: This is a corporate action in which a company offers its existing shareholders the opportunity to purchase additional shares at a discount.

Dividend reinvestment plan (DRP): This is a program offered by some companies that allows shareholders to automatically reinvest their dividends in additional shares of the company.

Self-managed superannuation fund (SMSF): This is a type of retirement savings account that is managed by the individual or couple who own it, rather than a professional fund manager.

Retirement income stream: This is a regular payment received by an individual during retirement, such as a pension or annuity.

Estate planning: This is the process of preparing for the transfer of an individual’s assets and wealth to their heirs or beneficiaries after their death.

Inheritance tax: This is a tax on the property or assets that are inherited by an individual from a deceased person.

Financial crisis: This is a situation in which financial institutions or markets experience severe difficulties, leading to a loss of confidence and a decline in asset values.

Economic recession: This is a period of economic decline, characterized by a decrease in gross domestic product (GDP), employment, and trade.

Gross domestic product (GDP): This is the total value of goods and services produced by an economy in a given period of time.

Consumer price index (CPI): This is a measure of the change in the price of a basket of goods and services consumed by households.

Interest rate: This is the rate at which interest is paid on borrowed money, or the rate at which interest is earned on deposited money.

Inflation: This is a sustained increase in the general price level of goods and services in an economy over a period of time.

Deflation: This is a sustained decrease in the general price level of goods and services in an economy over a period of time.

Monetary policy: This is the process by which a central bank, such as the Reserve Bank of Australia (RBA), uses interest rates and other tools to manage the supply and demand of money in the economy.

Fiscal policy: This is the process by which a government uses its spending and taxation powers to influence the economy.

Globalization: This is the process of increasing interconnectedness and interdependence among countries, through trade, investment, and the flow of people and ideas.

Trade deficit: This is a situation in which a country imports more goods and services than it exports, resulting in a net outflow of money.

Trade surplus: This is a situation in which a country exports more goods and services than it imports, resulting in a net inflow of money.

Balance of payments: This is a record of all economic transactions between a country and the rest of the world, including trade, investment, and financial flows.

Current account: This is the part of the balance of payments that measures the net flow of goods, services, and income between a country and the rest of the world.

Capital account: This is the part of the balance of payments that measures the net flow of financial assets, such as stocks, bonds, and bank deposits, between a country and the rest of the world.

Foreign exchange (forex): This is the market where currencies are bought and sold, allowing countries to pay for goods and services from other countries.

Currency appreciation: This is an increase in the value of a currency relative to other currencies.

Currency depreciation: This is a decrease in the value of a currency relative to other currencies.

Central bank: This is a government institution that manages a country’s monetary policy, regulates financial institutions, and acts as a lender of last resort.

Financial regulation: This is the process of setting rules and standards for financial institutions and markets, with the aim of protecting consumers and maintaining financial stability.

Financial inclusion: This is the process of providing access to financial services, such as banking and insurance, to individuals and businesses that may not have had access previously.

Microfinance: This is the practice of providing small loans and other financial services to low-income individuals and businesses, in order to help them access credit and build wealth.

Financial literacy: This is the ability to understand and manage personal financial matters, such as budgeting, saving, and investing.

Consumer protection: This is the practice of safeguarding consumers from unfair, deceptive, or fraudulent business practices.

Fraud: This is the act of intentionally deceiving someone for personal gain.

Money laundering: This is the practice of disguising the proceeds of illegal activities as legitimate funds, in order to conceal their source and avoid detection.

Cybersecurity: This is the practice of protecting computer systems and networks from unauthorized access, use, disclosure, disruption, or destruction.

Blockchain: This is a decentralized, digital ledger that records transactions on multiple computers, allowing for secure and transparent record-keeping.

Cryptocurrency: This is a digital or virtual currency that uses cryptography for security and is not issued by a central authority, such as a government or central bank.

Initial coin offering (ICO): This is a fundraising method in which a company sells digital tokens, or coins, to investors in order to finance its operations.

Alternative investment: This is an investment in an asset class that is not one of the traditional investments, such as stocks, bonds, or cash. Examples of alternative investments include real estate, precious metals, and art.

Venture capital: This is a type of private equity investment that provides funding to startups and small companies with high growth potential.

Private equity: This is the ownership of companies that are not publicly traded on a stock exchange.

Merger: This is the combination of two or more companies into a single entity.

Acquisition: This is the process by which one company purchases another company, either through a merger or by purchasing a majority of its shares.

Leveraged buyout (LBO): This is the acquisition of a company using a significant amount of borrowed money, in order to increase the potential return on investment.

Restructuring: This is the process of reorganizing a company’s operations, assets, or debt, in order to improve its financial performance and sustainability.

Insolvency: This is a situation in which a company is unable to pay its debts as they come due.

Bankruptcy: This is a legal process by which a company’s assets are liquidated and its debts are discharged, in order to provide relief to the company and its creditors.

Recovery: This is the process of returning to a state of health, growth, and prosperity after a period of difficulty or decline.

Economic growth: This is an increase in the production of goods and services in an economy over a period of time, resulting in an increase in the standard of living.

Productivity: This is a measure of how efficiently an economy or a company uses its inputs, such as labor and capital, to produce outputs, such as goods and services.

Innovation: This is the introduction of new ideas, products, or processes that improve efficiency or create new value.

Competitiveness: This is the ability of an economy or a company to produce goods and services at a lower cost and with better quality than its competitors.

Sustainability: This is the ability of an economy or a company to meet the needs of the present without compromising the ability of future generations to meet their own needs.

Environmental impact: This is the effect that an economy or a company’s activities have on the natural environment, including air and water pollution, waste generation, and habitat destruction.

Social impact: This is the effect that an economy or a company’s activities have on society, including the distribution of wealth and opportunities, and the quality of life of its members.

Corporate social responsibility (CSR): This is the practice of incorporating social and environmental concerns into a company’s business operations and decision-making.

Governance: This is the process of making and implementing decisions within an organization or society, in order to achieve its objectives and serve its stakeholders.

Transparency: This is the quality of being open, honest, and accountable in communication and decision-making, in order to build trust and confidence.

What are some common terms associated with property investing in Australia?

Property: This refers to a piece of land or a building that is owned by an individual or a company.

Real estate: This refers to the industry that involves buying, selling, and managing properties.

Real estate investment trust (REIT): This is a type of investment vehicle that owns and manages a portfolio of properties, and allows investors to buy and sell shares in the trust.

Residential property: This refers to a property that is used as a residence, such as a house, apartment, or townhouse.

Commercial property: This refers to a property that is used for business purposes, such as an office building, retail store, or warehouse.

Industrial property: This refers to a property that is used for manufacturing, distribution, or storage, such as a factory or a logistics centre.

Landlord: This is the owner of a property who rents it out to tenants.

Tenant: This is a person who rents a property from a landlord.

Rent: This is the payment made by a tenant to a landlord for the use of a property.

Lease: This is a legal agreement between a landlord and a tenant, setting out the terms and conditions of the rental arrangement.

Capital growth: This is the increase in the value of a property over time, as a result of market conditions or improvements made to the property.

Yield: This is the annual income generated by a property, expressed as a percentage of the property’s value.

Rental return: This is the annual income generated by a property, expressed as a percentage of the property’s value.

Negative gearing: This is a strategy in which an investor borrows money to buy a property, with the intention of generating rental income that is less than the cost of borrowing, resulting in a net loss that can be offset against other income.

Positive gearing: This is a strategy in which an investor borrows money to buy a property, with the intention of generating rental income that is greater than the cost of borrowing, resulting in a net profit.

Subdivision: This is the process of dividing a large property into smaller parcels of land, in order to create multiple titles and sell them individually.

Development: This is the process of improving a property, either by building new structures or renovating existing ones, in order to increase its value or change its use.

Valuation: This is the process of determining the value of a property, based on its location, condition, and comparable sales.

Strata title: This is a form of ownership in which a property, such as an apartment building, is divided into individual units, each with its own title and common ownership of shared areas.

Conveyancing: This is the legal process of transferring the ownership of a property from one person to another, including the preparation of legal documents and the settlement of funds.

Zoning: This is the process of dividing a city or town into different areas, according to the uses allowed in each area, such as residential, commercial, or industrial.

Development approval: This is the process of obtaining permission from a local government to develop a property, in accordance with zoning laws and other regulations.

Building code: This is a set of standards and regulations that specify the minimum requirements for the design, construction, and maintenance of buildings, in order to ensure safety and health.

Building inspection: This is the process of evaluating a property, either before or after construction, to ensure that it complies with building codes and other regulations.

Land tax: This is a tax levied by state governments on the owners of properties, based on the value of the land.

Stamp duty: This is a tax levied by state governments on the transfer of ownership of a property, based on the sale price or the value of the property.

Capital gains tax: This is a tax levied by the federal government on the profit realized from the sale of a property, if the property is not the owner’s primary residence.

Strata fees: This is the monthly or annual fee paid by owners of units in a strata-titled property, to cover the costs of maintaining common areas and providing services.

Body corporate: This is the legal entity that represents the owners of units in a strata-titled property, and is responsible for managing the property and enforcing the rules of the strata scheme.

Tenancy agreement: This is a legal contract between a landlord and a tenant, setting out the terms and conditions of the rental arrangement.

Rent review: This is the process of adjusting the rent on a property, either upward or downward, based on market conditions and the terms of the tenancy agreement.

Security deposit: This is a sum of money paid by a tenant to a landlord at the beginning of a tenancy, to be held as security in case the tenant fails to fulfill their obligations under the tenancy agreement.

Bond: This is a sum of money paid by a tenant to a landlord at the beginning of a tenancy, to be held by a government agency and refunded to the tenant at the end of the tenancy, subject to any deductions for damages or unpaid rent.

Break lease: This is the termination of a tenancy agreement by a tenant before the end of the agreed term, with the consent of the landlord or in accordance with the terms of the agreement.

Eviction: This is the process of forcing a tenant to vacate a property, either by the landlord’s own actions or by court order.

Dispute resolution: This is the process of resolving conflicts or disagreements between landlords and tenants, through mediation, arbitration, or other means.

Fair Trading: This is a government agency that administers consumer protection laws and provides information, advice, and dispute resolution services to consumers and traders.

Tenants Union: This is a non-profit organization that provides advice, advocacy, and support to tenants in their dealings with landlords, real estate agents, and other parties.

Property management: This is the process of overseeing the day-to-day operations of a property, including rent collection, maintenance, and tenant relations.

Some common terms associated with commercial property investing in Australia include:

Commercial property: This refers to a property that is used for business purposes, such as an office building, retail store, or warehouse.

Investment property: This refers to a property that is owned with the intention of generating income or capital growth, rather than being occupied by the owner.

Gross leasable area (GLA): This is the total floor area of a commercial property that is available for rent, excluding common areas such as lobbies and restrooms.

Net lettable area (NLA): This is the total floor area of a commercial property that is available for rent, after deducting common areas such as lobbies and restrooms.

Occupancy rate: This is the percentage of a commercial property’s NLA that is leased to tenants.

Tenant mix: This is the combination of different types of tenants in a commercial property, such as office, retail, or industrial.

Anchor tenant: This is a tenant that occupies a large portion of a commercial property, and is considered to be a key attraction for other tenants and customers.

Leasehold: This is the form of ownership in which a tenant holds the right to occupy a property for a specified term, subject to the terms of a lease agreement with the landlord.

Freehold: This is the form of ownership in which a property is owned outright, with no restrictions or obligations to a landlord.

Triple net lease (NNN): This is a lease agreement in which the tenant is responsible for paying the landlord’s property taxes, insurance, and maintenance expenses, in addition to the rent.

Gross rent: This is the total rent paid by a tenant, including any charges for utilities or other services.

Net rent: This is the rent paid by a tenant, after deducting any allowances or incentives provided by the landlord.

Rent review: This is the process of adjusting the rent on a property, either upward or downward, based on market conditions and the terms of the lease agreement.

Rent free period: This is a period of time during which a tenant is not required to pay rent, as an incentive to lease a property or to compensate for disruption during construction or renovation.

Rent guarantee: This is a commitment by the landlord or a third party to pay the rent on a property, if the tenant is unable to do so.

Tenant default: This is a failure by a tenant to fulfill their obligations under a lease agreement, such as paying the rent or maintaining the property.

Landlord default: This is a failure by a landlord to fulfill their obligations under a lease agreement, such as maintaining the property or providing services.

Assignment: This is the transfer of a tenant’s rights and obligations under a lease agreement to a third party, with the landlord’s consent.

Subletting: This is the process by which a tenant leases a portion of a property to another tenant, with the landlord’s consent.

Escalation clause: This is a provision in a lease agreement that allows the rent to be increased based on a predetermined formula, such as the inflation rate or the property’s operating expenses.

Guarantor: This is a person or a company that agrees to be responsible for a tenant’s obligations under a lease agreement, if the tenant is unable to fulfill those obligations.

Personal guarantee: This is a guarantee by an individual, such as a business owner or a company director, to be personally responsible for the tenant’s obligations under a lease agreement.

Corporate guarantee: This is a guarantee by a company to be responsible for the tenant’s obligations under a lease agreement, on behalf of the company and its directors.

Security deposit: This is a sum of money paid by a tenant to a landlord at the beginning of a tenancy, to be held as security in case the tenant fails to fulfill their obligations under the lease agreement.

Bond: This is a sum of money paid by a tenant to a landlord at the beginning of a tenancy, to be held by a government agency and refunded to the tenant at the end of the tenancy, subject to any deductions for damages or unpaid rent.

Break lease: This is the termination of a lease agreement by a tenant before the end of the agreed term, with the consent of the landlord or in accordance with the terms of the agreement.

Eviction: This is the process of forcing a tenant to vacate a property, either by the landlord’s own actions or by court order.

Dispute resolution: This is the process of resolving conflicts or disagreements between landlords and tenants, through mediation, arbitration, or other means.

Property management: This is the process of overseeing the day-to-day operations of a property, including rent collection, maintenance, and tenant relations.

Commercial Tenancy Act: This is a state law that regulates the rights and obligations of landlords and tenants in commercial leasing arrangements.

Interest cover: This is a financial ratio that measures a property’s ability to generate sufficient rental income to cover the interest payments on its mortgage. It is calculated by dividing the property’s net operating income (NOI) by its annual interest expense. A property with a high interest cover ratio is considered to be financially healthy and able to withstand fluctuations in the rental market, whereas a property with a low interest cover ratio is considered to be vulnerable and potentially at risk of defaulting on its mortgage.

Mezzanine finance: This is a type of capital that is used in property development to bridge the gap between traditional equity and debt financing. It is a hybrid form of financing that combines features of both equity and debt, and is typically structured as a subordinated loan or a preferred equity investment. Mezzanine finance is typically provided by specialist lenders, such as mezzanine funds or high-net-worth individuals, and is used to finance the construction or acquisition of a property, or to refinance existing debt. Mezzanine finance is typically more expensive than traditional debt financing, but offers greater flexibility and control to the developer, as the lender is not entitled to a fixed rate of return and does not have the same level of control over the project as a senior lender.

Mortgage warehousing: This is a financing technique that is used by mortgage lenders to manage the flow of funds and reduce their exposure to risk. It involves the temporary holding of mortgage loans in a warehouse account, before they are sold to investors or securitized into mortgage-backed securities. Mortgage warehousing allows lenders to fund new loans and generate revenue from the interest paid by borrowers, without having to hold the loans on their own balance sheets for an extended period of time. This enables lenders to originate more loans and reduce their capital requirements, but it also exposes them to the risk of fluctuating interest rates and changes in the creditworthiness of borrowers.