Exchange

The expense ratio measures the costs of managing an investment fund, such as a mutual fund or an exchange traded fund (ETF). It represents the percentage of assets deducted annually to cover the fund’s expenses, like management fees, admin and operational costs. Investors usually prefer a lower expense ratio because it means more of their investment goes towards potential returns.

An exchange is a marketplace where buyers and sellers trade assets, like stocks, bonds, commodities, or currencies, like cryptocurrencies. Exchanges are essentially the platform for transparent and efficient transactions. Some well-known stock exchanges include the New York Stock Exchange (NYSE), the Nasdaq, Cboe, London Stock Exchange (LSE), the ASX and the NZX. For cryptocurrencies, exchanges including Binance, Coinbase and Kraken, enable users to buy, sell, and trade digital currencies. Exchanges play an important role in financial markets because they are highly regulated, which ensures fair and orderly transactions.

An exchange traded fund (ETF) is a basket of investments that can include companies, gold, bonds and property. Many KiwiSaver funds invest in ETFs because they help diversify an investment portfolio. Some ETFs follow an index, such as the S&P 500, which includes the 500 largest companies listed on the US share markets including many of the world’s most recognisable brands. Read more about exchange traded funds.

The equity market, also known as the stock market, is where shares of publicly traded companies are bought and sold. It’s a place where investors can become partial owners of companies by purchasing company stocks. Companies use equity markets to raise money, called capital, by issuing shares, usually through an IPO, and for investors to trade the shares. Equity markets are the building blocks of the global financial system, where supply and demand determine stock prices.

Equity refers to ownership in a company or an asset. It’s the total dollar value of a company or asset, minus any debts. In the share markets, equity means an investor owns shares in a company. Equity holders, that’s shareholders, usually have voting rights at annual general meetings (AGMs) (except if they own a different class of share) and may receive dividends.

EPS is calculated by dividing a company’s earnings by the number of common shares available to trade. A high EPS can indicate greater profitability and income to support the company’s future growth. However, some companies reinvest earnings straight back into the business, while others might pay out those earnings as dividends. A low EPS may mean a company is less likely to give shareholders a slice of the profits as dividends.

Encryption is the process of encoding information into a secret code to prevent access by people who are not authorised. It turns readable data - called ‘plaintext’ - into scrambled text - called ‘ciphertext’. Only authorised people or groups can decode ciphertext back into plaintext. Encryption keeps data safe and private, and is used in blockchain technology, as well as message services like Whatsapp.

The listing date, or effective date, is the day a stock exchange lists shares and when trading in a public market commences after an IPO. This happens once shares have been allocated - usually once they’ve been paid for - and includes the share market having approved a company to list their shares there. To do this, the exchange has made sure a company can follow all its rules and the company has paid the listing fees. On this date, the total number of shares is confirmed along with the listing price, and any investor, including retail investors, can buy the company's stock on the share market.

EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation. It shows how much money a business generates from its core operations before including factors such as interest and taxes. EBITDA can be used to assess a company’s operating performance.

Earnings is the amount of profit a company makes each quarter. Essentially, it’s revenue with costs taken out, like operating expenses, sale costs and taxes. Analysts look at earnings to assess a stock’s value, often called ‘analyst expectations’. Earnings are important for investors and analysts to understand a company’s financial health, how stable it is, and whether their stock is over- or undervalued. In other words, whether it’s underpriced, overpriced, or about right. A company may choose to reinvest their earnings into growing their business, paying off debt, or they could be paid to shareholders as dividends.