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Stock Market Terms for a New Investor

Ready to start investing in the stock market? A stock market is a place where you can buy and sell shares of stock with the goal of buying at a much lower price than you sell at.

By bidding or making an offer to purchase, the buyer purchases shares when they believe their value will rise. When the seller believes their shares have reached their peak price, they sell them by making an offer or a request for buyers to purchase their shares. The bid-ask spread is the difference between the highest offer from the buyer and the lowest acceptable price from the seller.

Everyone would profit if the stock market was predictable. Unfortunately, it is not, and it can be quite volatile at times. In this article, we will go over some terms that every new investor should be familiar with.

Though other types of assets, such as bonds, real estate, and commodities, can be purchased, these terms refer to stocks.

Types of Markets

Bull Market

A bull market is one in which stock prices are rising throughout the market for a prolonged period. The term can be applied to a single stock, a sector of the market, or the entire market. When investors believe the market is a bull market, buyers start buying, and prices increase.

A bull market is the opposite of a bear market.

Bear Market

A bear market is one in which the market is in a downward trend. Typically, the market is considered a bull market when it has fallen 20% from recent highs. If investors believe the market is a bear market, they will begin selling stocks, further driving down demand and prices.

A bear market is the inverse of a bull market.

Types of Stock

Blue Chip Stocks

Blue chip stocks are from huge companies that are financially stable and have an excellent reputation. They have dependable earnings and frequently pay dividends to their investors. As a result, these companies are typically considered market leaders.  

Initial Public Offering (IPO)

An IPO is the first offer of stock a company makes to the public. It occurs when companies move from private ownership to public. If the stock offering is doing well, companies may follow it with a secondary offering.

Pink Sheets

Pink sheets are listing of stocks that are traded over the counter instead of on major stock exchanges. They are usually smaller companies.

The Mechanics of the Market

Broker

A broker is a person who charges a fee or commission to buy and sell stocks for you.

Close

Close is the time when the stock exchange closes to trading.

Exchange

Exchange is the place where stocks are traded. Two well-known exchanges in the United States are the New York Stock Exchange and the Nasdaq.

Open

Open is when the stock exchange opens for trading for the day.

Trading Volume

Trading volume is the number of shares being traded on the market each day.

Types of Orders

Day Order

A type of stock market order that is canceled if the order isn’t filled before the end of the day.

Good-till-canceled Order

A good-till-canceled order is an order to buy or sell a stock at a certain price no matter how long it takes. Sometimes the market puts a limit on how long these orders can stand.

Limit Order

A limit order sets the price but not the deadline. It allows investors to sell or buy a stock at a predetermined price sometime in the future.

Market Order

A market order is an order to buy or sell a stock immediately at the current price. In a volatile market, the price the stock is sold at may differ from the last traded price. This can be a risky practice.

Buying and Selling Strategies

Averaging Down

Averaging down is a strategy to buy more stock as the price decreases. The goal is to lower the average price of your overall stock purchase.  

Day Trading

To buy and sell stocks all before the close of the market on a single day.

Going Long

Going long is a buying strategy in which an investor buys a stock with a plan to hold it for a long time with the expectation that the price will increase over time.

Leverage

Leverage is a practice in which you borrow capital to buy more stock than you can afford. One example is buying on margin. In this case, you borrow from your broker using your other stocks in your account as collateral. The difference between the amount you borrow and the price of the stock is the margin.

Other Terms

Arbitrage

The process of buying and selling the same stock on different markets at different prices simultaneously to earn a profit is called arbitrage. For example, an investor can buy a stock on a foreign market where the price has not yet adjusted for the exchange rate and sell it on the local exchange.

Beta

Beta is a statistical measurement of the relationship between how a stock performs when compared to the overall market.

Dividend

A dividend is a percentage of the company’s earnings is paid to individuals who own shares of stock, shareholders, on a quarterly or annual basis. Not all companies pay dividends, and those that do, may not pay them consistently.

Execution

Execution is when a buying or selling transaction is completed.

Forex

Forex is short for foreign exchange.

Index

An index is a benchmark that is used as a reference point for traders and portfolio managers.

Liquidity

Liquidity is a measure of how fast stocks can be bought and sold without significantly affecting the price.

Market Capitalization

Market capitalization, also called a market cap, is the total value of all a company’s stock.

Moving Average

A stock’s moving average is its average price per share during a predefined period.

Portfolio

A portfolio is your collection of investments.

Rally

A rally is a rapid increase in the price of a stock or the market overall.

Sector

A sector is a group of stocks that are in the same industry, such as the technology industry.

Spread

The spread is the difference between the bid (how much you are willing to pay) and the ask (how much the seller is willing to sell the stock for).

Stock Symbol

A stock symbol is series of letters used to represent a publicly-traded company on the stock exchange.

Volatility

Volatility is a measure of how fast the price of stocks moves up and down.

Yield

Yield is a measure of the return on investment that you receive when you are paid a dividend.

Knowing the language is an important step towards building your stock portfolio. Frequently, though, knowing the terms brings up even more questions. Contact us to discuss your investment goals.

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