Exploring the stock market can be difficult for a novice investor. Not only are there countless concepts and terminology to understand, but almost everyone will try to give you contradictory advice.
For example, if the price of a stock in your portfolio falls, should you buy more at a lower price, or should you cut your losses strategically? Some specialists will tell you one thing, while others tell you something completely different.
How do you address this problem? By conducting your own research – And what is the best way for new traders to get started? Learning the jargon of trading! If you really want to learn the basics of trading, you must first understand the terminologies that you will most likely encounter along the way.
This article will serve as your ABC guide to the different stock market terms that you need to know as a beginner.
A
1. Annual Report
Annual reports give shareholders information about the business. It has details like the cash flow and management strategy of the company. When you look at a company’s annual report, you can tell if its solvency and what its financial situation is like.
2. Arbitrage
Arbitrage means buying and selling the very same security on various exchanges and at different price levels. If a stock trades for $15 on one exchange and $20 on another, you can buy shares for $15 and sell them for $20 on the other market. The difference would be your profit.
3. Averaging Down
Adding to a losing position at a lower price is called “averaging down.” It makes your position size bigger and lowers the average price you pay for a trade.
B
4. The Bear Market
A bear market is a market environment in which a major index or stock falls by 20% more than its recent highs. It is the exact opposite of a bull market.
5. Beta
Beta is defined as the measure of a stock’s volatility in comparison to the market as a whole.
The beta of the markets is 1. If ever a stock has a beta of 1.5, it implies that it moves 1.5 points for every one-point move in the market. This indicates that the stock is more erratic than the market.
6. Blue Chip Stocks
Blue-chip stocks are those issued by large, industry-leading corporations. The phrase is derived from blue gambling chips, which are the most valuable in casinos.
7. Bourse
This stock market term is somewhat ambiguous. Technically, it refers to the stock market. It gets its name from a house where wealthy men used to gather to trade stock. However, in modern parlance, it usually refers to the Paris stock exchange or a non-US stock exchange.
8. The Bull Market
A bull market is basically the exact opposite of a bear market. It denotes a market in which stock prices have increased by at least 20% from their recent low.
A single stock can be both bullish and bearish. A sector can do the same.
9. Broker
A broker is a company or individual who fulfills your buy and sell orders for stocks as well as other securities. Every trader requires the services of a broker.
10. Bid
Bid is the price a trader is willing and able to pay per share for a stock. It is aligned against the ask, which would be the price a seller is willing to pay per share of the same stock.
C
11. Close
It is the time when the market shuts down. The big exchanges close at 4 p.m. Eastern, but trading continues after hours until 8 p.m.
D
12. Day Trading
Day trading is an action that includes buying and selling stocks or other securities on the same trading day. This is how most investors usually trade.
13. Dividend
A dividend is a part of a company’s profits that it gives to its shareholders every three months or once a year. Not every business gives out dividends. Penny stock companies don’t have them very often because they rarely make money.
E
14. Exchange
A place where traders and investors can buy and sell stocks. The New York Stock Exchange (NYSE) and Nasdaq are the most well-known exchanges in the U.S.
15. Execution
When your order to buy or sell is finished, this is called “execution.” If you put in an order to sell 100 shares, your order is carried out when all 100 shares are sold.
H
16. High
A stock or index reaches a high when its price goes up. A high can happen once a day, once a week, or once a month. This can be a good sign for traders when stocks are close to their 52-week or all-time highs.
I
17. Index
An index is a measure that traders and investors use as a reference point. Indexes include the Dow Jones Industrial Average (the Dow) and the S&P 500.
18. Initial Public Offering (IPO)
An initial public offering (IPO) is the first time a company sells or gives away stock to the general public. Companies that want to go public must follow strict rules set by the Securities and Exchange Commission (SEC) (IPO).
L
19. Leverage
To use leverage, you borrow money from your broker. The goal is to make more money. It’s one way to possibly make more money, but it also makes it easier to lose money. Don’t use leverage when you trade.
20. Low
The opposite of high is low. It means that the price of a stock or index has gone down.
M
21. Margin
A trader can borrow money from a broker to buy a stock or other asset with a margin account. Margin is defined as the difference between how much you borrowed and how much the security costs. Margin trading is risky. If the trade goes wrong, you could lose a lot of money.
O
22. Open
This is the beginning of the business day. The stock market in the U.S. starts trading at 9:30 a.m. Eastern. At 4:30 a.m. Eastern, the premarket starts. As an investor/ trader, you’ll have to take note that there’s less volume in premarket and after-hours sessions.
23. Order
Order is the amount of stock a trader wants to buy or sell. You can check the types of stock orders here.
24. OTC Stocks
OTC stocks are traded without an exchange. They are traded electronically, but the trades are not as clear as on the big exchanges. Usually, companies that do their trading on the OTC markets are small ones that don’t meet the requirements to trade on the major exchanges. They can also be foreign companies.
P
25. Pink Sheet Stocks
The lowest level of OTC stocks is called “pink sheet” stocks. They are the riskiest companies, and their shares usually trade for less than $5 each.
26. Portfolio
A trader or investor’s portfolio is the collection of assets that they have. Investors can have as few as one stock or an unlimited number of stocks and other securities in a portfolio.
Q
27. Quote
A quote is a price at which a stock was last traded. Most of the time, stock quotes on free websites are outdated. Take note that real-time information might cost you more.
R
28. Rally
A rally is when the market’s overall price level or the stock price goes up quickly. It can be either a bull rally or a bear rally, depending on the situation as a whole. In a bear market, a rally can happen when prices go up by as little as 10%.
S
29. Sector
A sector is a collection of stocks in the same business. One example is the tech industry, which includes Apple and Microsoft, among other companies. Some traders like to trade in a certain sector, especially when momentum is strong in that sector.
30. Share Market
Any market where people can buy or sell shares of a company. A share market is something like the stock market.
31. Spread
In stock terminology, “spread” is defined as the difference between the bid price and the asking price of a stock. Say a trader is willing to sell a stock for $30, and a buyer is willing to buy it for $25. It’s a $5 difference.
32. Stock Symbol
A stock symbol is a string of letters with one to four letters. It stands for a company that is traded on a stock exchange. The stock symbol for Apple Inc. is AAPL.
V
33. Volatility
Changes in a stock’s price or in the stock market as a whole. Stocks that are very volatile move around a lot and have big price changes during the day.
34. Volume
The number of stock shares that were traded during a given time frame. It’s usually measured by the average number of daily trades.
Y
35. Yield
Yield usually means the amount of money you get back from an investment, like a dividend payment. This essential metric in the stock industry is calculated by dividing the amount of the annual dividend by the price of the stock.
