As a beginner in the stock market, it’s helpful to familiarize yourself with key terms and concepts.
Here are 20 important stock market terms to know:
- Stock: A share in the ownership of a company. Owning stock represents a claim on part of the company’s assets and earnings.
- Ticker Symbol: A unique series of letters assigned to a security for trading purposes. It serves as a shorthand way to identify a stock.
- Bull Market: A market characterized by rising prices and optimism among investors, indicating a positive economic outlook.
- Bear Market: A market characterized by falling prices and pessimism among investors, often associated with a weak economy.
- Index: A measure of the performance of a group of stocks. Examples include the S&P 500, which tracks 500 large-cap U.S. stocks, and the Dow Jones Industrial Average (DJIA), which tracks 30 major U.S. companies.
- Portfolio: A collection of investments held by an individual or entity, often including stocks, bonds, and other asset classes.
- Dividend: A portion of a company’s profits distributed to its shareholders. Dividends are usually paid in cash, but they can also be in the form of additional shares.
- Market Capitalization (Market Cap): The total value of a company’s outstanding shares of stock, calculated by multiplying the stock price by the number of shares.
- Earnings Per Share (EPS): A company’s profit divided by its number of outstanding shares. It is a measure of a company’s profitability on a per-share basis.
- Price-to-Earnings Ratio (P/E Ratio): The ratio of a company’s stock price to its earnings per share. It helps investors assess the valuation of a stock.
- Blue Chip Stocks: Shares of large, well-established, and financially stable companies with a history of reliable performance. These stocks are often considered lower risk.
- Volatility: The degree of variation of a trading price series over time. High volatility indicates larger price fluctuations.
- Market Order: An order to buy or sell a security immediately at the best available price.
- Limit Order: An order to buy or sell a security at a specific price or better. It may not be executed if the specified price is not reached.
- Diversification: Spreading investments across different asset classes or sectors to reduce risk.
- Broker: A financial intermediary that facilitates buying and selling of securities on behalf of investors.
- ETF (Exchange-Traded Fund): A type of investment fund and exchange-traded product that holds a portfolio of assets, typically designed to track the performance of a specific index.
- Day Trading: Buying and selling financial instruments within the same trading day to take advantage of short-term price movements.
- Margin: Borrowed money used to buy securities. Trading on margin involves risks and may magnify both gains and losses.
- 52-Week High/Low: The highest and lowest prices at which a stock has traded over the past 52 weeks (one year). These values provide insights into the stock’s recent performance and can be used to gauge its volatility and potential trend. Investors often consider 52-week highs and lows when assessing a stock’s strength or weakness in the market.
This list provides a starting point, but it’s important to continue learning and staying informed about financial markets as you progress in your investment journey.