An option contract that gives you the right to buy (but does not lock you into buying) the underlying asset at a specified price, at or before a certain time in the future. You would use a call option when you expect the price of an asset to increase.
For individuals, the money or other assets owned for the purpose of investing. For a company, the funds received from owners or investors to further its business objectives.
A decrease in the value of a capital asset.
The difference between what you paid for an asset (including buying costs) and what you got when you sold it (less selling costs).
Capital gains tax
a tax on profits made from buying or selling certain assets.
The increase in value of an asset over time. Also known as capital gain.
A product where investors are protected against significant loss of the amount invested. Can contain clauses and performance hurdles that limit the protection. Also called capital protection.
Capital stable fund
A fund that invests across a range of asset classes but with a significant portion in defensive assets such as fixed interest investments and cash and a small portion in growth assets such as shares and property. This type of fund aims to provide a moderate level of income with some capital growth.
Cash withdrawn from a credit card account. A transaction fee is usually charged, as well as interest from the date the cash is withdrawn until it is paid back in full.
Money invested in short-term, interest-paying investments. Having money in a bank account is an example of a cash investment.
Cash management account
A transaction account used to receive cash from investments such as dividends or proceeds of sales, and from which new investments are purchased.
Cash out facility
Offered by many retailers such as supermarkets, where you can take out extra cash from your cheque or savings account when you pay for purchases with your debit card
The interest rate charged on overnight loans between banks. The Reserve Bank of Australia (RBA) sets a target cash rate in order to control monetary policy.
In relation to property law, a caveat is a legal notice that shows who has an interest in your property. You can’t register a dealing (for example, to sell the property) until all caveats are removed or you get the consent of any people who hold a caveat. To put a caveat on your property or remove a caveat, contact your state’s Land Titles Office.
A return of funds from a retailer or service provider to a consumer’s bank account, line of credit or credit card, often initiated by the consumer’s bank.
The process of moving a customer from one financial product to another in order for an adviser or broker to earn a fee. This practice usually has little or no benefit to the customer.
The process of moving a customer from one financial product to another in order for an adviser or broker
to earn a fee. This practice usually has little or no benefit to the customer.
A clearout occurs when your lender has not been able to get in touch with you, despite making reasonable efforts to contact you.
A person who borrows money jointly with you. Each person is responsible for the loan, so if one of you does not pay, the other person must pay the full amount.
A payment made by the Government to the super fund of a low or middle income earner to reward them for making personal contributions to super. If you earn less than $37,697, the Australian Government will contribute $0.50 for every $1.00 of after-tax super contribution you make, up to a maximum of $500.
An unexpected call or visit by an unknown person, trying to sell something.
Property or assets you put up as security for a loan.
Collateralised debt obligations (CDO)
A bundle of individual loans such as car loans, credit card debt or corporate debt put together and sold as a single investment
Items that are rare or in demand and may increase in value over time. Examples include artwork, antiques, coins and wine.
A fee paid to an adviser or salesperson as an incentive for selling a particular product. An upfront commission is based on the sale amount of the product. An ongoing commission is based on the balance of the account.
A process of converting part or all of a pension or annuity into a lump sum.
A rate that helps you work out the true cost of a loan. It includes the interest rate, and most fees and charges relating to a loan, reduced to a single percentage figure.
Interest paid on the initial principal and the accumulated interest on money borrowed or invested.
Cover that provides the policy holder with broad protection. For example, comprehensive car insurance will cover loss or damage to your car and any damage you may accidentally cause to other people’s property.
Concessional super contributions
Concessional super contributions are payments put into your super fund from your pre-tax income and are tax deductable for self-employed people. They include your employer’s super guarantee (SG)contributions. Concessional super contributions are taxed at 15% when they are received by your super fund.
Condition of release
A nominated event you must satisfy to be able to access superannuation savings. Examples include permanently retiring from the workforce after reaching preservation age, reaching age 65 or becoming totally and permanently disabled.
Conflict of interest
A situation in which someone in a position of trust has competing professional and personal interests which could make it difficult for them to remain impartial. For example, an adviser or broker may sell you a product that benefits them more than it does you.
A type of home loan for people who are building their own home.
Consumer credit insurance (CCI)
Insurance that covers you if something happens that affects your capacity to meet the payments on your loan. CCI usually covers risks such as illness, death, disability or involuntary unemployment.
An agreement where you rent an item, like a laptop, TV or fridge, for a set amount of time. You make regular rental payments, typically weekly or fortnightly, until the lease ends. At the end of the lease, you don’t own the item. The company you leased it from does. The lease agreement shows you the total amount you’ll pay, including fees. This might be double what it would cost to buy the item outright in a store. The agreement could also be called rent to own or rent to buy. But you may not have an option to buy the item outright at the end of the lease. Whether to buy or gift the item is up to the lease provider.
Consumer price index (CPI)
Records the change in purchasing power by measuring changes, over time, in the weighted average price of consumer goods and services such as food, transport and medical care. It represents consumption expenditure by households in Australian metropolitan areas.
Contracts for difference (CFD)
A high-risk, leveraged derivative contract between a client and a CFD provider. CFDs allow you to speculate on the short-term movements in foreign exchange rates, share prices, stock market index levels or other underlying assets.
Your gain or loss depends on the price of the underlying asset when the contract starts and ends. If the price moves in your favour, the CFD provider pays you. If the price moves against your CFD position, you pay the CFD provider. Most people lose money trading CFDs.
How a CFD works
When you trade a CFD with a provider, you’re not buying an underlying asset but speculating on a price movement in an underlying asset. You agree to pay the difference between the price of the underlying asset when the contract opens and closes:
- If you ‘buy’ a CFD (known as a ‘long trade’) you are expecting the value of an asset to increase.
- If you ‘sell’ a CFD (known as a ‘short trade’) you are expecting the value of the asset to fall.
You will also have to pay transaction costs and other fees and charges to the CFD provider.
A CFD is a legally binding agreement. If the market turns against you, the CFD provider:
- will ask you to pay extra money at short notice to keep your CFD position open (called a ‘margin call’). This may lead to further losses
- may close out your CFD, for whatever it’s worth at the time. You may lose all of the money you invested
CFDs are not standardised contracts and every CFD provider has their own terms and conditions. You are entirely dependent on how the operator fulfils their obligations to you as the client. Read the product disclosure statement (PDS) carefully before investing.
Risks of CFDs
CFDs are complex products. Even experienced investors struggle to understand the risks involved in trading them.
Most retail clients lose money trading CFDs. Consider whether you can afford to lose your money.
Leverage can lead to large losses
CFD leverage is like trading with borrowed money. The deposit (or ‘margin’) you give to the provider is a small fraction of what you are borrowing to invest.
Leveraging and trading on margin is highly risky. ASIC has applied leverage ratio limits to CFD products. Even a small price change against your CFD position can have a big impact on your trading returns or losses. You can quickly lose your entire investment.
For example, you may only have to put up $5,000 for a $100,000 contract. You are effectively borrowing the other 95%. A 5% change in the underlying asset price could mean you lose your $5,000.
Consumer protections may not apply with overseas CFD providers
CFD providers operating in Australia must have an Australian Financial Services (AFS) licence. Overseas CFD providers often don’t hold an AFS licence, so consumer protections under Australian laws may not apply. Importantly, you will not have access to independent dispute resolution through the Australian Financial Complaints Authority (AFCA). So, if something goes wrong, you may not be able to get help.
Wholesale clients lose consumer protections
Some firms may try to classify you as a ‘wholesale client’, rather than a ‘retail client’. They could ask you to sign up to a ‘pro-account’ and speak about the benefits to you. However, if you’re a wholesale client then you:
- may not have ‘negative balance protection’ or ‘margin close-out protection’ on your CFD and may lose more than your investment amount
- waive your right to access the CFD provider’s internal dispute resolution service
- will not have access to external dispute resolution through the Australian Financial Complaints Authority (AFCA)
- may not receive a Product Disclosure Statement or Financial Services Guide for the CFD
To check how you are classified, read the Product Disclosure Statement (PDS) issued by the CFD provider.
A conveyancer helps you meet all legal requirements involved with purchasing your home. They’ll handle most of the paperwork and questions you have about the process. They review and explain the terms and conditions of the contract.
A period of time in which you can get out of a contract for the purchase of goods or services, if you change your mind. The rules on cooling-off periods vary between states and territories. Details of a cooling-off period will be included in the contract, if the good or service has one.
A debt security issued by a company to investors to raise money to finance its business activities. Sometime called fixed-income securities because the issuer promises to pay a specific amount of interest on a regular basis and repay the principle on a set date.
The annual interest rate on a bond, paid by a bond issuer, relative to the face value of the bond.
A plastic card that gives you access to money the bank has agreed to lend you for a certain period of time. See also interest-free period on credit cards.
A document that contains the details of a loan, including the term, interest
rate, fees and charges, and repayments. Credit providers must provide you with a credit contract.
A file kept by a credit reporting agency that shows your credit history. Lenders access the information in your file to help them decide whether to lend to you. They can also record a default on your file if you make loan repayments late, or don’t pay a utility bill. Every time you make an application for finance an entry is recorded on your file showing the lender you applied to, the type of finance, the amount and the date. See also credit report and credit rating.
Anyone engaging in credit activities (for example, by providing credit or credit assistance to you) must give you a credit guide. A credit guide will contain information about the lender, such as their licence number and external dispute resolution (EDR) scheme membership. It will also include the sort of costs you might pay if you take a loan from the lender.
The maximum amount a bank will lend you under a loan or a credit contract.
An assessment of the credit-worthiness of individuals and corporations, based on their borrowing and repayment history.
Credit report (credit reference)
A report that details your credit history, including every time you have applied for credit or defaulted on a repayment. It is held by a credit reporting agency and a lender must ask you for permission to get this report. See also credit file.
Credit reporting agency
An organisation that collects and sells credit information on individuals and companies.
Community-based financial institution owned by its members that offers traditional banking services like savings accounts and loans, listed on the APRA website as a credit union. See also building society.
A person to whom you owe money.
Critical Information Summary (CIS)
A document supplied by a telecommunications provider that contains information about what you will pay and what you will get for your money. The information is presented in the same way so you can easily compare one provider’s price and service with others.
The risk that the value of your investments will be affected by changes in foreign currency exchange rates.