The stock market has its own terminology and lingo and each and every trader should know the basics. An informed trader is a smart investor. Please find below a short description of some of the more common terminology used in the world of stock trading.
Welcome to online stocks trading
Also known as the equity market, the stock market is the market in which stocks are issued and traded (either through exchanges or over the counter markets - OTC). The stock market is considered by many to be an important part of an efficient market-based economy, as it functions as a meeting point between companies and investors. Companies use the stock market to gain access to capital by selling pieces of their ownership, with the potential of gains from future profits, to investors, on what is widely known as the primary market. Once the company has sold its initial issuance of stock on the primary market, subsequent trading is carried out between investors on the secondary market.
A stock, also known as a share or equity, is a security, which represents a claim on a portion of a corporation's assets and earnings. Someone who holds stock in a company is known as a shareholder and is a co-owner of the company.
There are many kinds of stocks with the most typical being, common and preferred stocks. Common stock gives the owner the right to vote in shareholder meetings and to dividends. Preferred stock usually do not give the owner a right to vote, however, they hold an advantage over common stocks, in first stake on dividends and a higher claim on assets and earnings. One of the ways for a company to raise capital is by selling its shares. To issue a stock a company must use the services of an underwriter. It is the underwriter's job to analyze the company and in accordance with the findings, set a price for the stock. The company then decides how much stock they want to sell at their Initial Public Offering (IPO).
- Penny stocks - are stocks issued by smaller companies who will most likely not grow in size. The value of penny stocks is usually cheaper and in most cases is less than $2.00.
- Growth Stocks - Stocks of companies that have achieved relatively rapid growth or have been deemed very likely to succeed are known as growth stocks.
- Blue Chip stocks - Shares issued by large, well-known companies are known as blue chip stocks. A good example of a blue chip stock would be stocks from IBM or Intel.
- Ticker Symbols – Upon the issuance of a stock, each stock is accorded a unique alphabetic name for purposes of identification. In most cases, exchange listed stocks have three letters while NASDAQ listed stocks have four or more.
- Price/Earnings Ratio - The Price/Earnings ratio (P/E ratio) is a measurement of a share's price in relation to the company's net income or profit per share from the last year.
- Trading Volume - Trading Volume is a measurement (in hundreds) of the total number of stocks traded in a specific day.
- Bear market - A bear market is a term used to describe a specific period in which there is a general decline in the value of most stocks.
- Bull Market - A bull market is a term used to describe a specific period in which there is a general increase in the value of most stocks.
- Index - An index provides an average measurement for a specific group of stocks like Nasdaq 100, Dow Jones Industrial Average etc.