FAQ

Although there is no universally accepted definition of penny stocks, that does not stop people from trying to pin it down. When stocks are referred to as "pennies," this usually means stocks that have a low price and the company has low market capitalisation.

A currency exchange traded fund tracks exchange rate movements, as opposed to index movements. It tracks the performance of the Australian dollar against a foreign currency, for example, against the US dollar.

What is an exchange rate? It is the price of one currency in terms of another. The AUD-USD for example. This exchange rate can be expressed in two ways: the equivalent of one US dollar in Australian dollars, and the equivalent of one Australian dollar in US dollars.

Like standard exchange traded funds, the goal of synthetic ETFs is to track and mirror an index or benchmark performance. So what's the difference? While standard ETFs usually invest in all the securities in the index or a sample of the securities, synthetic ETFs enters into a swap agreement with a counterparty in order to match the index performance.

How does Synthetic ETFs Work?

Options and futures are similar in a way that they are both based on trading that involves subsequent events. Buyers and sellers are making a short time gamble that the price of the underlying financial instrument will soar and drop. Both contracts are also considered advanced forms of share trading, require additional training or the use of a specialist to be able to fully understand their characteristics.

When a company's shares are split, outstanding shares multiply. The shares are divided and the price is reduced. Say you have a twenty dollar bill, and somebody offers to give you two ten dollar bills in exchange for it. That's the same concept applied to share splitting. You have the same amount of money, only split into two smaller denominations.

For a newbie the stock market can be overwhelming. Apart from thousands of stocks to choose from there are also different type so financial instruments that you can look into. This is on top of all the research you have to do to be able to make money. And even with all that, in a highly unpredictable stock market, your still not guaranteed to have en early retirement. Apart form shares, options are another financial instrument you can buy.

Both of these terms can be easily confused because they are both managed funds, but they do have some essential differences. A superannuation fund is a taxation vehicle while a share fund is an investment vehicle.

A superannuation fund is a pension program that is created by a company for its employees. They are also referred to as a company pension plan. Money deposited in this fund will grow without any tax implications until the employee retires or withdraws.

Companies have the option in when they are going to pay their dividends. This is important for shareholders who have a stake in the company, but as a trader what does this mean to you?

Market rules are there for the same reason highway rules exist: to avoid roadkill. In share trading jargon, you may have heard of company so-and-so slapped with a "speeding ticket." Speed is generally good, but not when it means that your shares suddenly warped to an astronomical value seemingly without any explanation.

Perhaps one overgenerous investor spread top secret advice and caused a buying storm, causing share price to skyrocket. Dodgy company ABC, however, is keeping mum about it.

Both DRP and BSP are company offerings that increase your investment value. The two are subject to different tax methods under the Australian capital gains tax rules.

Dividend Reinvestment Plan (DRIP or DRP)

DRIP is a company plan offer allowing investors to reinvest cash dividends by buying additional or fractional shares. Majority of DRIPs allow you to buy shares without commission (or at a big discount).

DRP issued shares are treated as cash dividends. For income tax purposes, the shares are subject to franking credits if the dividends are franked.