Commencing on the journey of investment and wealth growth? Then you must at least be frequent with the basics of stock market trading. The stock market is the place where people can buy shares from the stocks of companies that are selling them. A stock is a company’s equity and the shares represent the pieces of the company’s capital investment and profit margin. So when people say that they have bought stocks, it means that they bought some shares from a single stock.
People who buy and sell shares are called traders. The objective of a trader is to make money from the rise and fall of a company. So when the company, whose shares a trader purchases, makes a good profit at the market, the trader makes money by selling the shares at a higher price. When the same company draws losses on the market, the trader loses money as the price of the shares falls.
Before you delve into the market by yourself, youmust know the basic terminology of the trading game and the stock market. Theterms of the market are definitive towards the trends of the industry anddescribe the various actions and events that take place in the market and thetrader’s books. Here are some of the important terms of the stock market thatyou must know of.
All companies with their stocks in the market, prepare an annual report that contains the operational information on the company for the traders to evaluate. The annual report of the company contains the cash flow information, management strategies, recent developments, etc. The traders can thus judge the company and compare it to other companies in the same industry.
The buying and selling of the same shares on two different markets at different prices are called arbitrage. Suppose that a trader buys shares at SGD 10 per share at a market. The same shares are being traded at SGD 12 on some other market. The trader can hence make a profit of SGD 2 on each share that he sells in the market with a higher price point.
Averaging down is the purchase of specific sharesthat have gone down in prices. This makes the purchasing price cheap for thetrader. This strategy is used by investors when they believe that theinformation about the company in the market is not valid and that the shareswill rebound again in the future. So when the price of the stock goes up, thetrader can make more profit on those shares.
When several stocks on the market are on adownfall trend, it is called a bear market. A bear market is opposite to the bull market andprices fall for a lot of company stocks.
A bull market is when the prices of many stocksin the market are seeing an upward growth. Opposite to the bear market, a bullmarket is a time when the purchase price of stocks shoots up. If you haveshares of a company that is excelling in the bull market, probabilities are youmight make a serious profit for yourself by selling them.
Beta is the measurement of the comparison ofmovement of the market to that of the stocks. For example, if a stock has abeta of 1.5, everyone point of move in the market would mean that the stock moves1.5 points.
7. BlueChip Stocks
This trading term shows referrals to the bluechips or coins in gambling, that represent the highest value on the table.Hence, blue-chip stocks are the shares given out by companies that are thebiggest players in their industry. These stocks are reputed to have betterfiscal management and are known to offer better security of dividendformations.
A broker is a person that takes care of yourinvestments and the buying and selling stock in exchange for a fee on eachinvestment you make.
A bid is the same thing as bidding on something.The asking price of the share is the amount that the seller demands for theshares, and the price that the trading buyer pitches for a number of the samestock, is the bid.
Closing is what the word stands for. The close is the time of the day when the stock exchange stops trading on stocks.
Trading while the stock exchange is open iscalled day trading and the traders that practice it are called active or daytraders. This is the time when the stocks are being bought and sold actively byall the traders.
The portion of a company’s profit that isdistributed among its shareholders quarterly or annually is called dividend.But not all the companies on the stock exchange distribute dividends. If you’retrading on penny stocks, for example, you’re not getting dividends over yourshares as the companies are small-cap companies that have a lower profitmargin.
An indexis a benchmark that traders and portfolio managers use as markers for theinformation on returns from their investment. For example, if a stock is set atindex 1 when you buy the shares on that index, the returning index that shows1.50, means that there is a 25% rise in the price of the shares in that index.
14. InitialPublic Offering (IPO)
An initial Public Offering or IPO is when a company puts in the very first of their stocks on the market for sale. This happens when a company decides to go public rather than working with in-house investors. The companies setting foot in the market with an IPO have to follow the guidelines of the Exchange Commission.
The Basic terminology of the stock market is less important than your predictions and intuition of the movement of stocks that you’re interested in. The terminology will help you understand some of the conversations on stock exchanges that might sound gibberish to a person who doesn’t know about the stock markets.
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