The stock market is a term that is known to everyone. However, many people are confused or do not have a clear idea of what different terms mean. They may have heard of it when people around them speak about the stock exchange or market values. However, you must understand the basics of the stock exchange market To grasp the concepts fully.
This article will tell you all about the terms used in the stock market and why it is important to learn them. Consider this article as a basic 101 course on the stock market and exchange.
What is the stock market?
The stock market represents an exchange place where participants buy and sell shares of publicly listed companies.
Why is it important to understand the stock market terminologies?
If you want to fully grasp the concept and understand what a stock market really is, you need to fully know the definitions and concepts of the terms used in the stock market. These terms do not generally mean that they are single-handedly targeting one thing; however, these terms can also mean different things. Many times, people use the terms to influence those who have joined the stock market, whereas many times, the people are using the terms to influence the stock game effectively. These can be used to predict the stocks and patterns in the coming years as well. So as an amateur, if you are new in the business world and want to invest in stocks, you must have a preliminary understanding of the terms. So the next time a person uses such terms around you, you may understand what they are speaking about.
Basic and Commonly Said Terms in the stock market
In this section, we will write the stock market terms, and their definition will be given as well. You can understand the terms and research more about them to have a clear picture.
1. Annual Report: As the name indicates, an annual report is a yearly report. This report is written and shared by the company once a year, and it entails information about the company’s performance in one year. It can also be used to predict new behaviors, and a good annual report is important to ensure that the people will invest in your stocks. People generally assess the financial stability of a company based on how well their annual report is.
2. Arbitrage: When you buy a stock from one market at one rate and then sell it at another market for a different rate, you calculate the difference. This difference between buying and selling rates is known as arbitrage. You can have arbitrage if one stock is available in two different markets at different rates. You can buy a Stock A at ten dollars from one market and sell the Stock A at eleven dollars in market two.
3. Averaging Price: As the principle of economics also states that when a thing is much more in supply, then the price will go down. This is applied in the stock market as well. When a person invests more and more in stock, the stock price is likely to fall. This means that the purchasing power is also decreased. The price can shoot up later as well; however, it can vary according to the circumstances.
4. Bear and Bull Markets: These terminologies are affectively used in terms of how the stock market is faring compared to other ones. For example, when a stock market is going in a loss, it is downward. This is known as a bull market. Whereas in contrast, if a stock market is going in profit and yielding much more in principle, this constitutes an upward trend. This upward trend in the speech of the stock market is denoted by a bear market, constituting that the stock market is bearing an upward trend. You can refer to them as simply profit and loss principles.
5. Beta: This beta in the stock market refers to the stock movement compared to the movement of the whole market. For example, if we say that a stock has a beta of 1.5, it means that when the market moves by one point, the stock will move by 1.5 points. This holds for the opposite direction, which means that either positions or movements of the stock and the market are proportional to one another, and they hold influence over the other as well.
6. Blue Chip Stocks: The big companies and corporations have stocks known as blue-chip stocks. They are well known for their on-time fiscal payments and efficient management of dividend payments as well. Therefore, these are well-reputed stocks available in the market. The terminology blue-chip came from the highest bidding chips that are generally used in casinos. Those chips in casinos were used for gambling.
7. Bourse: Bourse is just another term used for stock markets. In general, it was used for wealthy men who used to trade stocks in a house. The house was referred to as bourse. However, nowadays, it is used to denote a stock market that exists outside of America. Mostly it is used to denote the stock markets present in Paris.
8. Broker: A broker is a person who works for a commission. He is the one who generally buys the stock or sells it. He is generally investing in exchange for money.
9. Bidding: The bid is the highest price that the buyer or the one who is trading is looking to make to purchase a stock or to make an investment. There are two more terms related to bidding, which are spread and ask price. One of them is the “spread,” which means a difference between the two prices. The second term is known as “ask price,” which means that the investment is made at the same price given by the seller him/herself.
10. Closing: This is the easiest to understand as closing is when stock will shut down or close to stop any more trading. There are different times associated with the stock markets, and you need to understand which stock market closes at what time. The largest stock market in New York closes at four.
11. Day trading: When a person buys a stock and then sells it on the same day, it is known as day trading. You should make sure that the trading is done before the stocks on the day close. If it has closed, then the trading would be shifted to the next day and would not be considered day trading anymore.
12. Dividend: When a company shares its profits equitably amongst its employees, this shared profit is a dividend. This is generally what the company has made over a period of time, and it can be paid after three months (quarterly), after every six months (bi-annually), or once a year (annually). You must understand that not all companies distribute dividends among their employees. However, the companies that do are generally considered stable financially and capable of taking care of their employee’s needs.
13. Exchange: Exchange is that place where different investments happen. The well-reputed investments are in the New York stock exchange and NASDAQ.
14. Execution: The execution generally refers to when an order has been made about the buying and selling of the stock. For example, if you execute the decision and put it on paper to sell 100 stocks, it means that all hundred of them will be sold.
15. Haircut: When we speak of bidding and the asking price, which is the price given by the seller himself, this means that there is a fine difference between the bid and the asking price. This difference is known as a haircut in the stock market exchange terms.
16. High: When the stock reaches the maximum points or levels, you have reached the high. This can refer to the fact that the stock is now at a higher price than previously.
17. Index: An index is a standard that works as a reference when speaking of the markets and stock exchanges. If your stock is at a lower number and the index is generally higher, then it means that you will yield loss. Therefore understanding indexes is significant.
18. Initial public offer: As the name indicates, the initial public offer (IPO) is when you make the stock available to the market for the first time. It is generally the first sale that you apply. This also happens when a company has gone from private to public and openly exposes its stock to the market.
19. Leverage: When you take the help of your broker to get more stocks to yield more profit, it means that you are using the principle of leverage. It is a precarious business and is generally not recommended unless you know how it works.
20. Low: It is the opposite of what we discussed of high. It means that the purchasing price would be termed in a downward trend compared to going up and yielding loss.
21. Margin: When you borrow money from a broker to buy an investment, it means you are at a margin. It is also very risky and not recommended unless you have a good know-how of how it works.
22. Order: When you apply a bid to buy or sell an investment, it means order.
There are many other terms used in the stock market; however, you need to research well in understanding how the stock market works.