The stock market is one of the best investment opportunities available. It gives you a chance to buy and sell shares from different companies and make profits from that. It is up to you to conduct research on the most profitable companies and choose which ones to invest your money in.
However, succeeding in stock trading requires some basic knowledge of how the market operates. The more you understand the market, the more you are likely to succeed.
There are several things that you need to familiarize yourself with before venturing into stock trading.
Once you become aware of these terms Stock entry points will help you build a successful portfolio
Stock Trading Terms Every Trader Should Know
Stock trading terms are words that are commonly used in the securities industry. When stock traders use stock trading terms, they use these terms to refer to charts, indices, patterns, and other components of the stock market sector.
Understanding stock market terms is one of the best stock market tips you can have. Such terms will help you to easily understand how the stock market works. It is a fact that having knowledge about the stock market makes one more profitable compared to trading using your instinct.
Below are some of the commonly used stock market terms that every trader should know:
Arbitrage is the process of buying and selling similar stocks or securities in different stock markets and at different prices. For instance, if stock ABC is trading at $12.50 in one market and $12.0 in another, then a trader can purchase a certain number of shares for $12.0 and sell them at $12.50. The difference will be his or her profit.
2. Annual Report
An annual report is normally prepared by a company whose aim is to portray a positive image to investors. The report is loaded with plenty of information about the company such as its cash flow, leadership structure, and management strategy among other details. After reading the report, you will be able to determine the financial status of a particular company.
3. Averaging Down
Some investors have the habit of purchasing more stocks when the prices go down. As such, your average prices also decrease. This strategy can be applied if you are sure that the projections about the poor financial status of a company are wrong. It means that you expect the share price to rebound within a short period.
4. Blue-Chip Stocks
These are stocks of large companies and corporations. Most people prefer these stocks because they give a stable record of high dividend payments. If you invest in them, you are assured of receiving higher dividends for a long time.
5. Bear Market
This is a period in the stock market where share prices take a downward trend. It is a time when most traders hold their stocks and avoid buying or selling. The opposite of a bear market is a bull market – where the prices of stocks rise sharply.
Beta is the measure of a relationship between a share price and the movement in the entire stock market. For example, if stock ABC has a beta of 1.6, then for every one-point movement in the market, stock ABC moves 1.6 points and vice versa.
7. Bull Market
A bull market is where the entire market experiences a prolonged period of high stock prices. It is actually the opposite of a bear market. It is important to note that one stock can be both bullish and bearish. The same scenario can happen to the whole market.
This term is not very clear in terms of its definition. But it is commonly used to refer to the stock market. The term is derived from a rich house where wealthy men used to gather to trade shares. Today, the term is commonly used to describe the Paris stock exchange on non-U.S. markets.
A bid is generally the amount or figures a trader is ready to pay for a stock. It is usually balanced against the asking price – the amount that a seller would like to sell his or her stock for every share. The spread is the difference that exists between those two prices.
A broker is an individual or company that buys and sells shares on behalf of others. The broker charges a certain amount of money for helping you to trade in the stock market.
A dividend is a part of a company’s revenue that is normally paid to its shareholders or any person that owns stock in the company. Dividends are paid either quarterly or annually. However, not all companies pay dividends.
12. Day Trading
Day trading is the practice of purchasing and selling stock within the same day – before the markets close. Some people prefer this mode of trading because they can make a lot of profits within a short period of time. Those who engage in day trading are commonly known as active traders.
Execution happens when an order to purchase or sell a stock has been completed or finished. For example, if you put 100 shares for sale and all of them are bought, that trade is considered to have been executed.
Close basically refers to the time when the stock market closes its operation for the day. For example, NASDAQ and the NYSE close their operations at 4.pm but after-hours trading goes until 8. Pm.
This is one of the simplest terms in the stock market. It is a very thin spread between ask prices and a bid of a particular stock. The term can also be used to describe a situation where the stock price of a particular share is reduced by a certain percentage because of margin trades or other reasons.
16. Initial Public Offer (IPO)
An IPO is the first offering or sale of shares by a company. It normally happens after a company has made a decision to go public rather than remain private.
In a nutshell, one of the best stock market tips is to learn the basic terms used in the market. Understanding different terms will give you an opportunity to learn a lot about the stock market.
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