Anyone who has ever been involved with or has any working knowledge of the stock market can attest to the fact that fortunes truly can be made or lost in an instant. Some of the tales of those who have done so are legendary. For those investors that are more cautious and not prone to be swept away by grandiose dreams, the stock market allows them the opportunity to be a partial owner of a company. This affords them the ability to monitor the growth of that investment along with the growth of the company they have chosen to become involved with. There are a few things that investors that are fairly new to the stock market should know and and be totally aware of that can have effects on their lives.
Looking At The Stock Market And What It Is
A definitive definition of the stock market, and not considered stock market definitions for dummies would be something along the lines of the following. It is basically a common place where any trad able securities are transferred, sold, borrowed or bought. This will occur primarily by financial means and decisions. Securities might include bonds, stocks or various other sorts of financial involvements and contracts. To go a step further, people should know and understand that the stock market involves no trades whatsoever of any actual products which are not involved in any way with securities contracts.
The Value Of A Stock
Because stocks are by far the most commonly traded items on the market, it becomes imperative that one understand exactly what it is that “stock value” actually means. By the same token it should be mentioned that it is of benefit to the person involved to develop a working understanding of as much stock market terminology as they can. According to the majority of experts on these matters such as William Bernstein for example, a stock’s price is the best immediate symbol of it’s value and worth. Basically, this is because the price at any one time is the stock market’s overall consensus of the true value of that particular stock at the current moment in time.
Selling And Buying
People’s needs and desires to sell and buy securities are the absolute core reason for the existence of the stock market. The terms “sell” and “buy” do however have unique, independent and intimate meanings largely dictated by the specific situation at hand. An example of this might be when someone takes a stock and “shorts” it. They are basically betting that the price of the stock will be headed in a downward direction. They are betting that people will be far more interested and committed to selling the stock rather than buying it.
The Strategy Of Buy And Hold: This is basically a strategy where the investor purchases the stock with the intention and commitment of holding on to it for a basically long period of time.
Stock Commissions: These are the fees involved that are charged by a broker for handling the details of a trade.
Common Stock: This is simply a security showing ownership in a particular corporation or organization.
Day Trading: This is basically the buying and selling of a position or of a number of positions all happening within the confines of one particular trading day.
Diversification: When one attempts to spread their potential risks among a number of variant factors such as geographic location, various industries, different companies, properties or securities. Of course, the investor must understand that doing this will not guarantee there will be no losses for them.
Dividends: Earnings or a part of the company distributed to the shareholders of that company based on the profits gained. These can and will change from one time to the next.
Earnings Per Share: This is arrived at by accumulating the total amount of net profits and then dividing it by the number of common shares outstanding in the market.
IPO: This is the public’s first chance to purchase stocks in a particular company or offering.
Limit Order: An order by a customer to a broker not to execute any trade until the price that customer has previously determined is in fact reached.
Margin: This is when the investor only puts up a certain amount toward the purchase of a particular security and the balance is funded by another source such as the broker for example.
Market Order: An order to one’s broker to sell or buy immediately.
Short Selling: This is when an investor basically borrows a security so as to sell it to another investor. The selling investor has to then at some point in the future purchase the stock and then return it to the one from whom it was originally gotten.
Stop Loss Order: This is where the investor in an effort to halt any losses goes out and covers or sells their short or long position.
Tick: Any up or down change in the price of a stock.
Ticker Symbol: Basically different letter combinations that identify the bond or stock.
Yield Ratio: Taking two bond yields and arriving at the quotient.
Yield To Maturity: These are the rates of interest that if held until maturity will make the value of the bond equal to the price.
The Dow: Basically, this is an average share price of thirty of the most influential and largest stocks on the Exchange. It is often used as an indicator of the direction the market is moving.
S&P 500 Index: Another indicator of how things are going is this average of 500 stocks by Standard and Poor’s agency.