One of the main reasons why many people are afraid of investing is that the entire field seems a bit obscure and even scary to someone who has had no education in trading and business in general. It seems that you are bombarded by terms you do not understand which everyone else seems to know and it can be a bit daunting.
The goal of this little guide is to introduce the most essential stock market terms that will set you on your path of understanding and hopefully, one day, trading on the stock market.
A broker is a person who handles your investments for you. They purchase and sell your stocks for you and in exchange they charge a fee, usually in form of a commission.
Day trading is the type of stock market investing where a person buys and sells certain stocks within the same day. This is usually done with more volatile stocks and in specific markets such as the penny stock or the binary option market.
Exchange, or stock market exchange, is a place where brokers and investors trade their stocks. There are many exchanges in the world and in the United States, the most popular ones are the New York Stock Exchange and Nasdaq.
Hedging is a practice where an investor attempts to limit their losses by taking something called an offsetting position. For example, if they own a certain amount of a certain company’s stocks, they make another investment by betting against it. This way, they do not lose in any eventuality.
Initial Public Offering
Initial Public Offering (IPO) denotes the moment when a certain company goes public with their stocks, meaning that their stocks can be bought by the general public, as opposed to just their investors and owners.
An investor’s portfolio is the collection of the investments that they own. For some investors, their portfolio may include as little as a single stock while others may have thousands.
Quote is the information on a certain stock’s trading price. In case you are not using a broker trading platform, you might get this kind of information with a delay.
Spread is the difference between the price quoted by the seller and the one quoted by the buyer of a stock. These are negotiating prices that the seller and the buyer are willing to go for.
The key attributes of spread betting include the use of leverage, the availability of wide variety of markets and tax benefits.
A dividend is a part of a certain company’s earnings that are paid to people who hold their shares. Dividends are usually paid out quarterly or yearly. Keep in mind that only some companies pay dividends to shareholders.
Penny stocks are low-priced stocks that are traded on certain exchanges and which are quite different from “traditional” stocks. They feature lower liquidity, the market is more volatile and the possible payouts are relatively larger than with traditional stocks.
Blue Chip Stocks
Blue Chip Stocks are stocks of companies that are leading players in their respective fields. For instance, a Google stock is a blue chip stock. They usually come with stable and sizeable dividends and they are considered to be low-risk stocks. They are also quite expensive, as you might imagine.
The stock market index is a mathematical construct introduced and used to measure the value of a certain section of the stock market. It is used to describe a certain market and to calculate returns on investments, thus determining whether it makes sense to invest. S&P 500, Nikkei 225 and FTSE 100 are among the most prominent examples of this.