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By Yamina Wood
In order to gain an in-depth understanding of how to invest in the stock market, it is important to know and understand the terminology used. In this article I shall be giving you a list of those terms and phrases that are most widely used in the world of trading.
Terminology:
Asset – anything of value
Bankruptcy – When a company or person is declared insolvent (broke).
Bear market – A bear market is a general decline in the stock market over a period of time. It is a transition from high investor optimism to widespread investor fear and pessimism.
Blue chip stock – Shares in a well established and financially stable company.
Bonds – A formal contract to repay borrowed money with interest at fixed intervals. The issuer is the borrower (debtor), whilst the holder is the lender (creditor) and the coupon is the interest.
Book Value – The value of a company reached by adding the value of all tangible assets. If the company has declared bankruptcy, the book value is determined by dividing the value of the assets by the number of its shares.
Broker – Someone qualified to trade for clients.
Bull Market – A bull market is associated with increasing investor confidence, and increased investing in anticipation of future price increases.
Buy and Hold – Investment strategy where the stock is held for a long time.
Call – Contract that allows one to buy stock at a predetermined price.
Capital Gains – The money earned from the sale of an investment.
Castaway Stocks – Stocks that have been removed from indexes.
Closing Price – Amount at which the stock finished at the end of the trading day.
Daily High-Low – The highest and lowest point at which any one stock traded over the day.
Debt Securities – Financial instrument such as banknotes, bonds and debentures.
Debenture – This is a medium to long-term debt instrument used by large companies to borrow money.
Delisting – The removal of a stock from a stock exchange.
Derivative – This is a financial Instrument (or agreement between two parties) that has a value, based on the expected future price movements of the asset to which it is linked, e.g. A share or a currency
Dividend – The amount of profit the company will divide between its shareholders, usually four times a year.
Earnings per share (EPS) – Amount of earnings per each outstanding share of a company’s stock.
Initial Public Offerings (IPO) – or offering or flotation is when a company issues common stock or shares to the public for the first time.
Interest – The amount it is charged when money is loaned.
Low Market Capitalization – When the shares in a company are performing badly and have lost their value.
Mutual Fund – When money from different investors is used jointly to purchase securities.
Net Change – The difference in a stock’s value from one day to the next.
Net Worth – How valuable a company or individual is. This is worked out by subtracting all liabilities (anything owed) from all the assets.
Order – or exchange. This is an instruction from customers to brokers to buy or sell on the exchange.
Penny Stocks – Common shares of small public companies that trade at less than $1.00.
Primary Market – This is where the initial offering of stocks and bonds to investors is done. Any subsequent trading is done in the Secondary Market.
Public Company or Publicly Traded Company – This is a company that offer its securities (stocks, bonds and such) for sale to the general public, typically through a stock exchange.
Security – A negotiable financial instrument representing financial value. These can be debt securities such as bonds, banknotes, and debentures, or they can be equity securities such as common stocks, or they can be derivative contracts, such as forwards, futures, options and swaps.
Shares – A company will divide its capital into units of equal value, each unit will be called a share. These shares can be sold to raise capital for the company.
Shareholder – This will be the person who buys the shares. By acquiring a share or shares the shareholder becomes one of the owners of the company.
Stock Exchange – Entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. To be able to trade a security on a certain stock exchange, it must be listed there.
Stock Market Index – This is a method of measuring a section of the stock market. These may be classified in different ways. There are the global stock market index which include companies without regard for where they are domiciled or traded, such as S&P Global 100 or MSCI World. There are national index which represents the performance of the stock market of a given nation, such as S&P 500 for US, the Nikkei 225 for Japan and FTSE 100 for the UK.
Stock Trader – Individual or firm who will buy and sell stocks in the financial markets.
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