Are you interested in knowing more about the stock market? Stock market and investments become easier when you have a basic understanding of the common stock market terms that you encounter when you are beginning your investment journey. If you are new to the stock market, these terms will help you form a basic understanding of some of these stock market terminologies.
1.Stock market: An umbrella term referring to the collection of markets and exchanges where investors buy and sell equities to one another or companies issue their shares for the public to own and invest. The S&P 500 and NASDAQ are among the most important in the world. The Bombay Stock Exchange and National Stock Exchange are the largest in India.
2.Bear market: When the stock market experiences a consistent fall in the value of equities, we call it a bear market. It occurs when a drop of 20% or more in the price of stocks along with a negative market sentiment and weakening economic activity. Investors sell the stocks they own in fear of suffering losses and in hopes of buying them cheap in the future.
3.Bull market: When there is a continued increase in the prices of stocks in the market over an extended period, we call it a bull market. A bull market is characterized by a thriving economy and investors with a positive outlook on the market condition. Buying stocks early and selling them at their peak will help investors reap maximum returns.
4.Bonds: Bonds are investment securities, where the investor lends his or her money to the company for regular returns at a fixed rate. When the predetermined period is over, the bond issuer is bound to return the investor’s principal amount. Thus, bonds help companies gather the capital needed for their projects.
5.Convertible securities: These are the securities issued to an investor by companies or other issuers in the form of bonds or preferred stocks and can be converted into another form in the future.
6.Agent: An agent is a person or a firm who trades, that is, buys or sells securities on behalf of the investor. They’ll have a team of experts who would guide you in improving your portfolio.
7.Portfolio: A collection of financial assets, shares, bonds, and others, owned by an individual or a company is called a portfolio. The stocks in one’s portfolio are carefully chosen according to investment objectives, time period, and risk tolerance. The portfolio should be diverse to reduce risky investments.
8.Dividend: The returns for one’s investment, cash or otherwise, in a company are referred to as dividends. The sum paid to the shareholders depends on the earnings of the company. The Board of Directors decides the mode of payment and the amount.
9.Call option: They are financial contracts that give their buyer the right to buy a stock, bond, or any other assets at a predetermined price and within its expiration date. The set price of the underlying asset is called the strike price.
10.Initial Public Offering: The process of a private company issuing shares to the public and becoming a publicly-traded company is referred to as Initial Public Offering. This helps the company raise capital for its future projects.
11.Annual Report: Every company prepares a special annual report to impress its shareholders every year. This report contains tons of information regarding the company from its management strategy to its cash flow. Once you read it you will get a good idea about the company. You will be able to judge the company’s financial performance and its ability to pay the debts.
12.Arbitrage: Arbitrage refers to buying and selling the same security at different prices in different markets. For example, if a stock is trading at two different prices, then the trader should buy the share from the market with less price and then sell it in the market with more price.
13.Beta: Beta can be understood as a measurement of the relationship between the piece of a stock and the movement of the whole market.
14.Blue Chip Stocks: these are stocks behind large companies. They offer a stable record of significant dividend payments and they also have a good reputation for good fiscal management. This expression was derived from blue gambling chips, this is the highest denomination of chips used in chips.
15.Bourse: This term is a bit dark but technically it simply means Stock market. This word originated from a house in which wealthy men used to gather for trading shares. But, nowadays we hear it is frequently used in stock market conversations. It refers to the Paris stock exchange or a non-U.S stock exchange.
16.Broker: A broker is a very important person in the stock market. A broker is a person who buys or sells an investment for you in exchange for a commission or fees. They usually keep a track of what's happening in the market.
17.Close: Close refers to the time at which a stock exchange closes for trading.
18.Bid: The price a trader or a corporation offers for a given number of shares of stock. It is usually carried out in stock markets and auctions. It gives an idea of how many and much is the buyer willing to purchase.
19.Ask: Ask is the amount of money at which the seller is willing to sell his or her share of the stock. It also specifies the amount of security that is being offered to the buyer or bidder. The ask price tends to be higher than the bid price.
20.Spread: The difference between the asking price and the bidding price of a security that is available on the stock market for purchase is called a spread.
21.Limit Order: A kind of stock market order in which a stock or security can be bought or sold only at a predetermined price or at a price higher than that. They can be further divided into buy and sell limit orders. For buy orders, it will be executed if it is carried out at the limit price or lesser, and in the case of sell limit order, the selling price needs to be at the set limit or higher.
22.Market Order: A stock market order that provides the fastest possible buying and selling instructions, at the current available market price. The orders can be expensive if there isn't enough volume to be traded.
23.Day order: It is a type of Stock market order to either buy or sell shares in which if the order is not filled during the market hours, it then gets automatically canceled at the market close.
24.Volatility: It is the measure of how much the stock moves up and down, statistically. Those stocks which move up and down frequently are called volatile stocks. They can give you high profit but it involves high-risk factors.
25.Liquidity: The ability of a stock to be bought and sold easily is called liquidity. If more shares are being bought it means more liquidity. It's easier for you to enter and exit a position if there are a lot of buyers and sellers for shares of stock.
26.Trading Volume: Trading volume refers to the number of shares that are traded at a point in time. If the trading volume is high then it means that the stock is actively trading. This helps you to enter and exit the positions easier.
27.Day trading: This refers to buying and selling of shares within the same day before the market closes. Those traders who participate in day trading are called active traders or day traders.
28.Execution: If you buy or sell a share and the trade has been completed, we say that the trader has executed the transaction.
29.Market Capitalization: Market capitalization or market cap is the total value of the company’s stock. For example, if a company has 100 outstanding shares and the stock price is $10 per share, then the market capitalization will be $1000.
30.Outstanding shares: Outstanding shares are also known as the total number of shares. This includes both public float and restricted shares held by the management or key investors.
31.Mutual Funds: The collective term for the amount of money taken from the investors in different forms like stocks, bonds, and other securities. This pool of money is handled by money managers who handle these assets to get maximum gains for the investors.
32.High: A stock or an index is said to be at a high when it reaches a price point higher than previously achieved. There are time-constrained highs like 52-week highs or 30-day highs and record highs which are the highest achieved by a stock or an index during their trading duration.
33.Low: Low occurs when a stock or an index hits a lower price level compared to the previous one.
34.Rally: When a stock or an index sees a rapid increase in the price of stocks or markets over a period of time consistently, it is called a rally. Short-term rallies may result from news announcements regarding a company’s stocks, a change in its management, etc. Long-term rallies occur when business regulation, fiscal policies, and so on.
35.Crash: Crash refers to the rapid decline in the market value. This mostly occurs when the market is undergoing inflation.
36.Public float: An umbrella term to refer to the freely-traded stocks for the general public to purchase and sell.
37.Pink-sheet stocks: Also called penny stocks, these stocks are traded at $5 or lower, that are traded over-the-counter. They may have the potential to become multibagger stocks in the future.
38.Stock symbol: A publicly-traded company in a stock exchange is represented using one to four alphabetic or numerical root symbols which are referred to as a stock symbol.
39.Stock Quote: The stock price quoted in a stock exchange is called a stock quote. A stock quote contains information about its ask price, last traded price, the volume traded, and bid price.
40.Dividend yield: The ratio of the dividend paid out by the company to its investors to the current stock price is called the dividend ratio. It is expressed in percentage.
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