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Trading Glossary

Take a look at our list of the financial terms associated with trading and the markets. From beginners starting their trading journey to experts with decades of experience, all traders need to clearly understand a huge number of terms.

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Acquisition

What is an Acquisition?

An Acquisition is a business transaction where one company buys all, or part, of another company's shares or assets. This can be done in an attempt to gain control of, and expand on, the target company's market while also gaining or at least conserving resources.

There are three main forms of “pairing business together”:

  • Acquisitions – When both business entities continue their operations in one form or another.
  • Mergers – When only one of the entities remains while the other is taken over.
  • Conglomeration / Amalgamation – When both business entities are reformed into a new one.

As part of the Acquisition process, the acquiring company purchases the target business's shares or assets, which gives it the authority to make use of the target’s assets as if they are its own.

Why do companies make acquisitions?
Companies make acquisitions as there are several benefits to doing so, including lower entry barriers, growth and market influence. There are also some challenges and difficulties associated with this process. These include conflicts of cultures, redundancy, contradicting objectives and unmatched businesses.

What are the four types of acquisitions?
There are four types of acquisitions that companies perform.

  1. A Horizontal acquisition happens when company acquires another company that is in the same business.
  2. A Vertical acquisition is defined as one company acquiring another which is in a different position on market or the supply chain.
  3. Conglomerate acquisitions happen when the company buying the target and the target company itself operate in unrelated industries or are engaged in unrelated functions.
  4. Congeneric acquisition occurs when an acquiring company and the acquired company market different products or services, yet sell to the same customers. 

Stock Dilution

What is Stock Dilution?

Stock dilution is the decrease in existing shareholders' ownership of a company as a result of the issuance of new shares. It typically occurs when companies raise capital by issuing additional shares, thereby reducing the stake of existing shareholders.

Why do companies dilute stock?
Companies dilute stock to raise capital for future growth and investments, often through the sale of additional shares. This allows companies to raise money without having to take out loans or issue bonds. Diluting stock can help reduce overall debt and create a healthier financial situation for the company.

Is stock dilution a good thing?
It depends. If done properly, diluting stock can help raise funds for business operations and growth. It also encourages investors to purchase shares due to the lower price per share. However, too much dilution can weaken shareholder equity and damage investor confidence.

What does dilution do to stock price?
Dilution decreases a stock's price by decreasing its earnings per share (EPS). This happens when a company issues new shares to the public, increasing the total number of shares outstanding and resulting in lower EPS for existing shareholders. Dilution can also occur through corporate acquisitions, mergers or issuing debt that is converted into equity.

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Acquisition

What is an Acquisition?

An Acquisition is a business transaction where one company buys all, or part, of another company's shares or assets. This can be done in an attempt to gain control of, and expand on, the target company's market while also gaining or at least conserving resources.

There are three main forms of “pairing business together”:

  • Acquisitions – When both business entities continue their operations in one form or another.
  • Mergers – When only one of the entities remains while the other is taken over.
  • Conglomeration / Amalgamation – When both business entities are reformed into a new one.

As part of the Acquisition process, the acquiring company purchases the target business's shares or assets, which gives it the authority to make use of the target’s assets as if they are its own.

Why do companies make acquisitions?
Companies make acquisitions as there are several benefits to doing so, including lower entry barriers, growth and market influence. There are also some challenges and difficulties associated with this process. These include conflicts of cultures, redundancy, contradicting objectives and unmatched businesses.

What are the four types of acquisitions?
There are four types of acquisitions that companies perform.

  1. A Horizontal acquisition happens when company acquires another company that is in the same business.
  2. A Vertical acquisition is defined as one company acquiring another which is in a different position on market or the supply chain.
  3. Conglomerate acquisitions happen when the company buying the target and the target company itself operate in unrelated industries or are engaged in unrelated functions.
  4. Congeneric acquisition occurs when an acquiring company and the acquired company market different products or services, yet sell to the same customers. 

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Stock Dilution

What is Stock Dilution?

Stock dilution is the decrease in existing shareholders' ownership of a company as a result of the issuance of new shares. It typically occurs when companies raise capital by issuing additional shares, thereby reducing the stake of existing shareholders.

Why do companies dilute stock?
Companies dilute stock to raise capital for future growth and investments, often through the sale of additional shares. This allows companies to raise money without having to take out loans or issue bonds. Diluting stock can help reduce overall debt and create a healthier financial situation for the company.

Is stock dilution a good thing?
It depends. If done properly, diluting stock can help raise funds for business operations and growth. It also encourages investors to purchase shares due to the lower price per share. However, too much dilution can weaken shareholder equity and damage investor confidence.

What does dilution do to stock price?
Dilution decreases a stock's price by decreasing its earnings per share (EPS). This happens when a company issues new shares to the public, increasing the total number of shares outstanding and resulting in lower EPS for existing shareholders. Dilution can also occur through corporate acquisitions, mergers or issuing debt that is converted into equity.

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