Liquidity

A listed investment company (LIC) buys a mix of different investments, such as stocks, bonds and property, and is publicly listed on the ASX where everyday investors can buy or sell shares in them. Like exchange traded funds, LICs enable investors to diversify their portfolio and potentially lower risk. LICs are managed by professional fund managers who charge a fee for managing the investments. They differ from listed investment trusts (LITs) because they’re structured like companies and issue shares, while an LIT is structured as a trust and issues units. Because LICs are listed on the share markets, they can be simpler to buy than mutual funds. There are more than 100 LICs and LITs on the ASX. Learn more about LICs and LITs.

Limit orders give investors some control over the price they buy and sell shares compared to market orders, and can be used to buy or sell shares at a lower price than they're currently trading at. To create a limit order, an investor enters the exact number of shares at the price they want to pay (buy), or receive (sell). The order will be completed for buyers, if the market price matches or goes lower; and for sellers, if the market price matches, or goes higher. Understand the differences between market and limit orders.

Losses in financial markets, bonds, shares, or real estate investments refer to negative financial outcomes. These occur when the value of an asset decreases, resulting in lower capital gains or investment returns. For example, falling stock prices or property values leads to losses for investors and property owners. These financial setbacks can impact an individual’s net worth and overall financial health.

The London Stock Exchange, or LSE, is the largest stock exchange in the UK and Europe. One of the world’s oldest stock exchanges, it was founded in London in 1895. In 1973 it merged with several provincial exchanges, including the Edinburgh exchange, to form the LSE. More than 1,300 companies from 60 different countries list on the LSE with a combined market cap of around US$4.861 trillion. These include Toyota (Japan), General Electric (US), and Rio Tinto (Australia). The FTSE 100 Share Index, or ‘Footsie’, includes 100 top blue chip stocks listed on the LSE, including Tesco, Vodafone, Barclays, BP and Rolls Royce.

A lock-up period is when founders and some early investors and company employees are restricted from selling their shares after an IPO lasting usually between 90-180 days. The goal of a lock-up period is to avoid flooding the share markets with too many shares in a company and causing the share price to drop due to oversupply. Once the lock-up period ends and all restrictions are lifted, investors can sell or buy as many shares as they choose and that are available.

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.

Listing is when a company’s IPO shares become available to buy and sell via a share market or stock exchange. A company goes from private ownership to public ownership by listing on a share market through an Initial Public Offering (IPO) a direct listing or a SPAC.

Liquidity means how simply and quickly an asset or security can be converted to cash without negatively affecting its market price. High liquidity means an asset can be quickly turned into cash without impacting its value, while low liquidity means an asset can’t easily be converted to cash without affecting its value. Money is the most liquid of assets, while tangible items - like houses - are less liquid. Investors value liquidity because it provides flexibility and reduces the risk of significant price fluctuations. There are two main types of liquidity:

• Market liquidity: Where assets can be bought and sold at stable, transparent prices
• Accounting liquidity: Assesses whether there’s enough available cash to pay off debts

Understanding an asset’s liquidity - such as company stock - is important for making informed investment decisions.

Liabilities are what a company owes to others. These can include loans, unpaid bills, mortgages, debts or other financial responsibilities. They fall under:

• Current or short-term or near-term liabilities: What’s owed as part of usual business operations within a year - such as monthly bills, short-term debt, expenses, wages, and dividends due to be paid to investors
• Non-current or long-term liabilities: What’s owed that are listed on a company’s balance sheet that aren’t due for more than a year. These can be sizeable and include things like deferred taxes, payroll, and retirement funds

Looking at a company’s liabilities is important for understanding whether they are in good financial health now and into the future.

A ledger, or digital ledger, is a digital record that keeps track of all transactions or data. It’s a secure, unalterable list where everyone who looks through it can see what happened and when. When people talk about blockchain as being a digital ledger, they mean it’s a detailed digital notebook that stores all the important information.