Glossary of stock market terms

 

Glossary of stock market terms

One of the first steps any beginner entering the world of stock market investment should take is to understand the industry-specific jargon used. Here are some of the most important stock market terms you’ll encounter as you learn about investing.

Averaging Down

This is when an investor buys more of a stock as the price goes down. This makes it so your average purchase price decreases.

Bear Market

This is trading talk for the stock market being in a downtrend or a period of falling stock prices. This is the opposite of a bull market.

Beta

A measurement of the relationship between the price of a stock and the movement of the whole market. If stock XYZ has a beta of 1.5, that means that for every 1 point move in the market, stock XYZ moves 1.5 points and vice versa.

Blue Chip Stocks

These are the large, industry-leading companies. They offer a stable record of significant dividend payments and have a reputation for sound fiscal management. The expression is thought to have been derived from blue gambling chips, which is the highest denomination of chips used in casinos.

Bull Market

This is when the stock market as a whole is in a prolonged period of increasing stock prices. Opposite of a bear market.

Broker

A person who buys or sells an investment for you in exchange for a fee (a commission).

Brokerage account

A brokerage account is a type of taxable account that one has to open with a stock brokerage firm. If you deposit cash into this account either by writing a check or linking it to a savings account at your bank. Once this cash is deposited, it can be used to acquire many different types of investments. A brokerage account can hold many different types of investments such as common stocks, preferred stocks, corporate bonds, mutual funds, exchange-traded funds and many more.

Cash Dividend

A cash dividend is money paid to stockholders normally as part of the corporation’s current earnings or accumulated profits. All dividends must be declared by the board of directors, and they are taxable as income for the recipients. Long-term investors who want to maximize their gains can reinvest their dividends. Most brokers offer a choice to reinvest or accept cash dividends.
Cash dividends are a common way for companies to return capital to their shareholders in the form of periodic cash payments, typically, on a quarterly basis. While many firms pay regular dividends, there are special cash dividends that are distributed to shareholders after certain non-recurring events such as legal settlements or the borrowing of money for large, one-time cash distributions. Each company establishes its own dividend policy and periodically assesses if a dividend cut or an increase is warranted. Cash dividends are paid on a per-share basis.

Day Trading

The practice of buying and selling within the same trading day, before the close of the markets on that day. Traders that participate in day trading are often called “active traders” or “day traders.”

Dividend

This is a portion of a company’s earnings that is paid to shareholders, or people that own that company’s stock, on a quarterly or annual basis. Not all companies do this.

Exchange

An exchange is a place in which different investments are traded. The most well-known in the United States are the New York Stock Exchange and the Nasdaq.

Execution

When an order to buy or sell has been completed. If you put in an order to sell 100 shares, this means that all 100 shares have been sold.

Index

An index is a benchmark which is used as a reference marker for traders and portfolio managers. Examples are the Dow Jones Industrial Average and Standard & Poor’s 500.

Initial Public Offering (IPO)

The first sale or offering of a stock by a company to the public, rather than just being owned by private or inside investors.

Margin

A margin account lets a person borrow money (take out a loan essentially) from a broker to purchase an investment. The difference between the amount of the loan and the price of the securities is called the margin.

Moving Average

A stock’s average price-per-share during a specific period of time. Some time frames are 50 and 200 day moving averages.

Order

An investor’s bid to buy or sell a certain amount of stock or option contracts. You have to put an order in to buy or sell 100 shares of stock.

Portfolio

A collection of investments owned by an investor. You can have as little as one stock in a portfolio to an infinite amount of stocks.

Quote

Information on a stock’s latest trading price. This is sometimes delayed by 20 minutes unless you are using an actual broker trading platform.

Rally

A rapid increase in the general price level of the market or of the price of a stock.

Sector

A group of stocks that are in the same business. An example would be the “Technology” sector including companies like Apple and Microsoft.

Spread

This is the difference between the bid and the ask prices of a stock, or the amount someone is willing to buy it and someone is willing to sell it.

Stock Symbol

A one-character to three-character, alphabetic root symbol, which represents a publically traded company on a stock exchange. Apple’s stock symbol is AAPL.

Stock Dividend

A stock dividend is a dividend payment made in the form of additional shares rather than a cash payout. A stock dividend is a distribution of shares to existing shareholders in lieu of a cash dividend. This type of dividend arises when a company wants to reward its investors but either does not have the capital to distribute or it wants to hold onto its existing liquidity for other investments.
A stock dividend is considered small if the shares issued are less than 25% of the total value of shares outstanding before the dividend. A small stock dividend journal entry is made that transfers the market value of the issued shares from retained earnings to paid-in capital.

Stock Split

When you invest in stock exchange, you will encounter something known as stock split. A stock split is an accounting transaction designed to make the nominal quoted market value of shares more affordable.
Moreover, a stock split is a corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares. Although the number of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts, because the split does not add any real value. The most common split ratios are 2-for-1 or 3-for-1, which means that the stockholder will have two or three shares, respectively, for every share held earlier.

Volatility

This refers to the price movements of a stock or the stock market as a whole. Highly volatile stocks are ones with extreme daily up and down movements and wide intraday trading ranges. This is often common with stocks that are thinly traded, or have low trading volumes.

Volume

The number of shares of stock traded during a particular time period, normally measured in average daily trading volume.

Yield

This usually refers to the measure of the return on an investment that is received from the payment of a dividend. This is determined by dividing the annual dividend amount by the price paid for the stock.