50 investing terms every Australian investor should know

If you've ever wondered what terms like dead cat bounce, short squeeze, HODL or diamond hands actually mean, you're not alone.

The investing world is full of jargon, from basic sharemarket terms to complex Wall Street slang. Understanding these investing terms can help you make sense of market moves, analyst commentary and social media investing trends.

Here's a plain-English guide to 50 investing and stock market terms every Australian investor should know.

Stock market terms every beginner should know

All Ords 

The All Ordinaries Index, or All Ords, tracks the 500 largest companies listed on the ASX and is one of Australia's most widely quoted sharemarket benchmarks.

ASX 200

The S&P/ASX 200 tracks the 200 largest companies listed on the ASX by market capitalisation.

Market cap 

Market cap, short for market capitalisation, is the value of a company's outstanding shares and is commonly used to measure a company's size.

Companies are often grouped by market cap:

• Mega cap: $200 billion+
• Large cap: $10 billion+
• Mid cap: $2 billion to $10 billion
• Small cap: $250 million to $2 billion
• Micro cap: Less than $250 million

Blue-chip shares

Blue-chip shares are stocks in large, established companies with a strong track record of earnings and financial stability.

In Australia, companies such as Commonwealth Bank, BHP and CSL are often referred to as blue-chip shares.

Retail traders

Retail traders are individuals who use their own money to buy and sell investments.

Unlike institutional investors, they do not manage money on behalf of others.

Institutional investors

Institutional investors are organisations that invest money on behalf of large groups of people.

Examples include superannuation funds, pension funds, hedge funds and managed funds.

Brokerage

Brokerage is the fee charged by a broker or trading platform when you buy or sell an investment.

Brokerage costs vary between providers and can affect your overall investment returns.

ETFs

An exchange traded fund (ETF) is an investment fund that holds a basket of assets, such as shares or bonds, and trades on a stock exchange.

ETFs can provide diversification at a relatively low cost.

Index fund

An index fund is an investment fund that aims to track the performance of a market index, such as the ASX 200 or S&P 500.

Because they simply follow an index rather than trying to beat it, index funds often have lower fees than actively managed funds.

Diversification

Diversification is the practice of spreading your investments across different assets, industries or markets to reduce risk.

The idea is that if one investment performs poorly, gains in other parts of your portfolio may help offset the losses.

Portfolio

A portfolio is the collection of investments owned by an individual or organisation.

A portfolio can include shares, ETFs, bonds, property, cash and other assets.

Sharemarket movements and investing jargon explained

Bull market

A bull market occurs when share prices are rising or expected to continue rising over a prolonged period.

The term is associated with optimism and investor confidence.

Bear market

A bear market occurs when share prices fall significantly from recent highs, typically by 20% or more.

Bear markets are associated with pessimism and weaker investor sentiment.

Correction

A market correction is a decline of 10% or more from a recent market high. Corrections are a normal part of investing and can occur after markets rise too quickly.

Rally

This refers to a sustained upward movement in the stock prices. Rallies can occur in either bear or bull markets.

Sell-off

A sell-off occurs when a large number of shareholders sell a particular stock. Heavy selling pressure can push a share price lower.

It may happen when there is news about the company, or rumours or lower than expected earnings.

Volatility

Volatility measures how much an investment's price moves up and down over time.

High volatility means larger price swings, while low volatility generally indicates greater stability.

Markets tend to become more volatile during periods of uncertainty or economic stress.

Dead cat bounce

A dead cat bounce is a temporary recovery in a share or market after a steep decline, before prices resume falling.

Crystallise losses

To crystallise a loss means to sell an investment for less than you paid for it. Until you sell, any gain or loss remains unrealised.

Capital gains

A capital gain occurs when an asset is sold for more than its original purchase price.

For example, if you buy shares for $5000 and later sell them for $7000, you have made a capital gain of $2000.

Black swan event

A black swan event is a rare and unexpected event that has a major impact on financial markets.

These events are difficult to predict and often only seem obvious in hindsight.

Catch a falling knife

Catching a falling knife refers to buying a rapidly falling stock in the hope that it will rebound.

The phrase highlights the risk of buying before a share price has stabilised.

Trading and investing strategies you should know

Index futures

Index futures are contracts that allow investors to speculate on the future value of a sharemarket index, such as the ASX 200 or S&P 500. Because they trade outside normal sharemarket hours, index futures are often used as an indicator of how markets may open the following day.

Options trading

Options trading involves contracts that give traders the right to buy or sell an asset at a predetermined price before a certain date.

Options can magnify gains, but they can also increase losses.

Call options

A call option gives the buyer the right, but not the obligation, to purchase a stock or other security at a specified price before a set date.

Short selling

Short selling is a trading strategy based on the belief that the value of a particular stock will fall.

In practice, it could involve a short seller borrowing shares from a broker and then buying them back after the price falls, allowing them to profit from the difference.

Short squeeze

A short squeeze happens when a heavily shorted stock rises sharply in price, forcing short sellers to buy shares to cover their positions and limit losses.

The resulting demand can drive the share price even higher.

Gamma squeeze

A gamma squeeze occurs when heavy options trading forces market makers to buy shares, pushing the stock price higher.

This can create a feedback loop that accelerates gains.

Day trading

Day trading is the practice of buying and selling shares or other assets within the same trading day.

Day traders aim to profit from short-term price movements rather than long-term investing.

Multibagger stock

A multibagger is a stock that increases several times above its original purchase price.

For example, a five-bagger has increased fivefold since it was bought.

Markets and the economy explained

AUD and the exchange rate

The Australian dollar (AUD) fluctuates in value against other currencies, particularly the US dollar.

The Australian dollar (AUD) is often viewed as a commodity-linked currency because Australia's economy is heavily exposed to exports such as iron ore and coal.

If the dollar falls, it makes Australian exports cheaper for overseas buyers and imports more expensive for Australians.

Bonds

Bonds are investments that involve lending money to governments or companies in exchange for regular interest payments and the return of your original investment at a set future date.

Bonds are generally considered lower risk than shares, although their value can still rise and fall.

Investors often use bonds as defensive assets within a diversified portfolio.

Dividend

A dividend is a payment some companies make to shareholders from their profits.

Dividends are typically paid in cash, though some companies offer additional shares instead. Not all companies pay dividends, with some choosing to reinvest profits back into the business.

Yield

Yield is a measure of the income generated by an investment, usually expressed as a percentage.

For shares, yield is most commonly based on the annual dividend payments relative to the share price. For bonds, it refers to the return an investor receives from holding the bond.

Gold

Gold is often viewed as a defensive asset and may perform well during periods of market uncertainty, although its price can be volatile and there are no guarantees it will rise when shares fall.

Oil

The price of oil can have a severe impact on the economy; for consumers, fuel can be one of the largest purchases of the week.

The price at the pump is determined by supply and demand in the global market.

Changes in global oil prices can influence petrol prices, although the relationship is affected by factors including refining costs, exchange rates, distribution costs and retail competition.

Defensive assets

Defensive assets are generally lower risk and lower return investments that can help cushion a portfolio during market downturns.

Defensive assets include cash, fixed interest, bonds and gold.

Circuit breakers or market halts (NYSE)

On rare occasions, where the market falls dramatically in a single day there are systems in place for the market to halt trading to stop a total market crash.

Typically these halts will last around 15 minutes to give people time to absorb information, analyse it and make more rational decisions.

Here's how they function: if the S&P 500 falls 7% from the prior day's close, it triggers a 15-minute trading halt.

If the S&P 500 falls 13% before 3.25pm, trading halts again for 15 minutes. If the S&P 500 falls 20%, all trading remains halted for the rest of the day. These systems have a long history.

Recession

A recession is commonly defined as two consecutive quarters of negative economic growth, measured by gross domestic product (GDP).

Recessions are typically associated with rising unemployment, weaker consumer spending and reduced business investment.

Governments and central banks may respond with measures designed to support economic activity, such as lowering interest rates or increasing public spending.

A global recession refers to a significant downturn in economic activity across multiple countries.

Global financial crisis (GFC)

The global financial crisis (GFC) refers to the period of extreme stress in global financial markets and banking systems between mid-2007 to early 2009.

It was triggered by the collapse of the US housing market and the widespread use of risky sub-prime mortgages that were bundled into complex financial products and sold to investors.

Home buyers were given loans they were unable to pay back, and the loans were sold through complex products called mortgage-based securities to unsuspecting investors.

Meme stock and Reddit investing terms

HODL

HODL is a misspelling of "hold" that became a popular investing term meaning to keep an investment despite market swings.

It is commonly used by cryptocurrency and meme stock investors.

Diamond hands and paper hands

Diamond hands refers to holding an investment despite large price swings or pressure to sell. It's often accompanied by diamond emoji symbols on social media.

The opposite of having diamond hands is paper hands, a slang term for an investor who sells an investment quickly, especially during periods of volatility or price declines.

To the moon

To the moon is a phrase used online to express enthusiasm that a stock, cryptocurrency or other investment will rise sharply in value.

It is often accompanied by rocket emojis and became popular during the GameStop saga.

Meme stocks and WallStreetBets

Meme stocks are shares that gain popularity through social media, online forums or viral investor communities rather than traditional company fundamentals.

Their prices can rise or fall dramatically as retail investors pile in.

One of the best-known communities is WallStreetBets, a Reddit forum that became globally famous during the GameStop short squeeze and helped bring meme stock investing into the mainstream.

Dumb money

Not just the name of a 2023 film, dumb money is a pejorative for retail investors (or their investments), while "smart money" is used to describe institutional investors.

Bag holder

A bag holder is an investor who continues holding a stock after its value has fallen sharply.

The term suggests the investor is left carrying losses while other investors have exited.

Wall Street slang and risk warnings

Fallen angel

A fallen angel is a company, stock or bond that was once highly regarded but has experienced a significant decline.

Some investors view fallen angels as turnaround opportunities.

Greater fool theory

The greater fool theory suggests investors can profit from overvalued assets if they can sell them to someone willing to pay an even higher price.

The strategy relies on finding a "greater fool" rather than on an asset's underlying value.

Widow maker trade

A widow maker is a notoriously risky trade or investment strategy that has caused substantial losses for many investors.

The term is often used for trades that repeatedly catch investors out.

Pump and dump scheme

A pump and dump scheme is a form of market manipulation in which false or misleading information is used to inflate a stock price.

The perpetrators then sell their holdings at the higher price, often leaving other investors with significant losses.

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