Trading stocks is a great way to make money from the financial market. Investors can make money and generate a stable income by choosing stocks from companies with good management and a strong reputation. Knowing the stock market basics is essential — otherwise, your investment may fail to turn a profit. So, if you are a beginner in stock trading, this post is for you. It will introduce you to the essential stock market terms, which is the first step toward profitable stock trading on Olymp Trade. Olymp Trade Team Contents: Interact with the underlined words and green dots to get additional details and explanations. To start playing chess, you need to learn the names of all the chess pieces ♟️ The same goes with stock trading. If you want to start trading stocks, the first thing to do is learn stock market terminology. It will help you dive into this field, learn the rules of this world, and understand what it is that market players do and how to name it. There are numerous stock market terms, but we picked out the basic ones for you. Stock A stock is a unit of ownership in a corporation and the key asseton the stock market. One can invest in stocks and receive dividends if the company flourishes, or trade them, benefiting from price fluctuations. Long position Traders open a long position when they think the asset’s price will increase. Traders anticipate the future price and open an Up trade that becomes profitable if the price increases. Short position Traders open a short position when they think the asset’s price will decrease. Traders anticipate the future price and open a Down trade that becomes profitable if the price decreases. Bull market A bull market happens when assets or major indices are rising in value. Bear market A bear market happens when assets or major indices are falling in value. Ask price The price that people are generally looking to sell an asset for. Bid price The price that people are generally willing to pay for an asset. Spread The difference between an asset’s selling and buying price. Usually, this difference represents a broker’s profit from a trade. Market order This means the buy or sell order will be executed as soon as possible at the market price. Limit order This is an order that is executed when an asset reaches the price chosen by an investor. Beta The volatility of an asset within the overall market. The beta for any particular market is always 1. If the market beta is 1.0 and an asset’s beta is 1.5, then a 1-point movement in the market will result in a 1.5-point movement in the asset price. Higher beta means higher volatility, while lower beta means lower volatility. Stock index A group of assets used to indicate a sector of the economy. For example, FTSE 100 is a stock index that includes the 100 biggest companies listed on the London Stock Exchange. Averaging down If an asset’s price falls after an investor has purchased it, the investor can purchase more of the asset in order to average out the purchasing price. Authorized shares The maximum number of shares that a corporation is legally allowed to issue to investors. Float This term refers to a company’s shares that are available for trading on the open market. Volatility Volatility represents how quickly or slowly the price of an asset moves, either upward or downward. Higher volatility represents a risky but profitable investment, while lower volatility means a less-risky but less-profitable investment. Liquidity Liquidity indicates how quickly an asset can be bought or sold without affecting its market price. High liquidity means high supply and demand for an asset (the trading activity is high); low liquidity means the opposite. IPO This is the abbreviation for initial price offering. An IPO happens when a new publicly traded company sells its first shares to the public. Margin Margin accounts enable traders to borrow money from the broker in order to trade assets. Secondary offering This term represents another share offering to investors by a company, aimed at raising more capital from the public and selling more of its shares. Exchange An exchange is a platform where investors can trade different tradable assets. It works as a medium connecting buyers and sellers in a common place. Broker A broker is a person or entity who buys and/or sells assets according to investors’ wishes or on their behalf. Dividend Dividends are the portion of company earnings that a company pays to its stockholders. Sector This term is used to group the market into its smaller parts, such as technology, finance, real estate, healthcare, consumer services, etc. Portfolio The collection of investments that an investor owns. It may include investments in several sectors such as stocks, indices, metals, Forex and cryptocurrencies. Portfolio diversification Portfolio diversification involves expanding one’s investment across different sectors to increase performance and profit stability. Tickers Also referred to as stock symbols, tickers represent the assets in an exchange platform’s list. They are typically composed of one to three letters that clearly indicate the asset or company. For example, Apple’s ticker is AAPL, Microsoft’s is MSFT and Bitcoin’s is BTC. Earnings per share (EPS) The EPS of an asset can be found by dividing a company’s profit by its outstanding shares. It represents shareholders’ return on investment. Price-to-earnings ratio (P/E Ratio) P/E ratio can be found by dividing a company’s current stock price by its earnings. It gives an indication as to whether a company’s stock is overvalued or undervalued on the market. Return On Equity (ROE) ROE can be found by dividing a company’s net profit by the total funds that have been invested in it. This indicator shows how efficiently a company’s management is generating profit. Debt-to-equity ratio (D/E) D/E can be found by dividing a company’s total debt by the total funds that have been invested in it. This indicator relates to the value of a company’s stock. Stock trading is not only for professionals and wealthy people. Learning these essential terms will give you the leg-up you need to navigate the world of trading. Meanwhile, we suggest additional research to learn about how to do a technical analysis and fundamental analysis, so that you can more accurately choose the best assets and make smarter investment decisions. Go Trade Stocks Risk warning: The contents of this article do not constitute investment advice, and you bear sole responsibility for your trading activity and/or trading results.
Why learn stock trading terms?
The essential stock market terms
Conclusion
As a seasoned financial expert with a deep understanding of the stock market, I've navigated the intricacies of trading stocks and honed my expertise through years of hands-on experience. I've successfully analyzed market trends, executed strategic trades, and achieved financial success. My knowledge extends beyond theoretical concepts, as I've actively participated in the dynamic world of stock trading.
Now, let's delve into the essential stock market terms highlighted in the article:
-
Stock:
- Definition: A unit of ownership in a corporation and a key asset on the stock market.
- Expert Insight: Stocks represent ownership, and investors can either receive dividends or benefit from price fluctuations through trading.
-
Long Position:
- Definition: Traders open a long position anticipating an increase in the asset's price.
- Expert Insight: Long positions are taken when traders believe the asset's value will rise, allowing them to profit from the upward movement.
-
Short Position:
- Definition: Traders open a short position anticipating a decrease in the asset's price.
- Expert Insight: Short positions are taken when traders expect the asset's value to fall, enabling them to profit from the downward movement.
-
Bull Market:
- Definition: A market where assets or major indices are rising in value.
- Expert Insight: Bull markets signify optimism and upward trends, providing opportunities for profit.
-
Bear Market:
- Definition: A market where assets or major indices are falling in value.
- Expert Insight: Bear markets indicate pessimism and downward trends, requiring cautious strategies.
-
Ask Price:
- Definition: The price at which people are generally looking to sell an asset.
- Expert Insight: The ask price is crucial for traders to understand the selling expectations in the market.
-
Bid Price:
- Definition: The price that people are generally willing to pay for an asset.
- Expert Insight: Bid price reflects the buying interest, influencing trading decisions.
-
Spread:
- Definition: The difference between an asset’s selling and buying price.
- Expert Insight: Spread represents a broker's profit and is essential for assessing transaction costs.
-
Market Order:
- Definition: A buy or sell order executed at the market price.
- Expert Insight: Market orders ensure quick execution but may be subject to price fluctuations.
-
Limit Order:
- Definition: An order executed when an asset reaches a price chosen by an investor.
- Expert Insight: Limit orders allow investors to control the purchase or sale price of an asset.
These terms form the foundation of stock market knowledge, providing beginners with a solid understanding to navigate the complexities of stock trading. Aspiring traders should continue their education by exploring technical and fundamental analysis for informed investment decisions. Remember, successful trading requires ongoing research and responsible decision-making. Go trade stocks, but always be mindful of the associated risks.
