Once you’ve been buying shares of stock and trading them for years, all of the terms that are commonly used will be quite familiar to you. However, if you’re new to the investment world, it can be very helpful to review a list of terms your stockbroker and more experienced traders already take for granted.
Here are some general terms you might want to memorize so that the next time you hear them, you won’t need to look them up. Soon, you’ll be able to easily recognize the difference between a “bull market” (one known for its optimism generated by rising stock prices) and its less enjoyable counterpart, the “bear market” (when share prices are generally in decline).
General Stock Market Terms Used Frequently
Accrued interest: When there’s “interest due from [the] last coupon date to present on an interest-bearing security, [the] buyer of the security [must pay] the quoted price plus accrued interest;”
Arbitrage: This trading approach involves purchasing and selling “substantially identical assets in order to profit from a price difference between the two assets;”
Bear markets (in general): This term already referenced above can also refer to all other traded items such as bonds, currencies, and commodities. It normally means that the stock prices have been falling by about 20 percent or more for a lengthy period of time;
Blue chip stocks: One of the best ways to define this term is to simply note that it refers to highly profitable, well-established companies like Coca-Cola, IBM, and 3M. While such stocks may be less risky investments, they generally won’t provide many short-term trading gains;
Bucketing: This occurs when a stockbroker decides to confirm a stock purchase order with a client with no plans to immediately put it through -- hoping to possibly make a profit if the price drops lower soon. You’ll always want to avoid any stockbroker you hear engages in this type of unethical practice;
Bull markets (in general): This term also already referenced above, can also describe the positive atmosphere present when other items like bonds, currencies; and commodities are traded;
Buybacks: These take place when corporations decide to repurchase a number of outstanding shares of their stock to lower the number of them available. This is sometimes done to raise share prices or to prevent aggressive or threatening shareholders from owning “a controlling stake;”
Call option: This term applies when the owner or option holder is allowed to purchase “a specific asset at a predetermined price until a certain date;”
Capital Gain: This means a stock was sold for a profit and the “capital gain is the difference between the net sales price of the securities and their net cost, or original basis.” Therefore, when shares are sold below cost, the type of difference referenced above represents a capital loss;
Capitalization: When referring to market capitalization, this term refers to the “value of a company as determined by the most recent stock price multiplied by the number of shares outstanding;”
Common/capital stock: A person who owns units or shares in a public corporation is usually allowed to “vote on the selection of directors and receive dividends;”
Current yield: This type of yield indicates the “measure of an investor’s return on a bond calculated by dividing the annual interest on the bond by the market price;”
Derivative: This term refers to a financial instrument whose value is dependent upon another financial asset, index or investment;
Dividends: These are paid by a corporation based upon its earnings and the types of stock owned by individual shareholders; it’s normally paid as either cash or stock. Dividends are normally paid quarterly and are determined by a business’ board of directors;
Float, The: This can refer to more than one situation. In one case, it can reference “the number of shares that are publicly owned and available for trading.” This term can also mean the “difference between the credits given by the Feds to banks’ accounts or checks being cleared through the Fed and debits made to the banks’ accounts on the same checks;”
Floating exchange rate: You can arrive at this number by evaluating how currencies are responding to various market forces;
Hedge funds: These types of investment “vehicles . . . [are] like mutual funds [and] are generally structured as partnerships wherein the number of investors is limited -- and whose general partner has made a substantial personal investment in the fund;”
Indexes: These are statistical composites that help indicate the “performance of a market or a market sector over various time periods. You can review a list of many of them – including the Dow Jones Industrial Average, the New York Stock Exchange and many others by “clicking” on this link referring to this term;
Insider trading: This refers to what people do who obtain (and make use of) confidential information – not yet released to the public -- about a public company’s stock situation in order to realize huge gains or avoid terrible losses;
Junk bonds: These are high-risk bonds that carry low credit ratings;
Leverage Buyout: This type of transaction occurs when a small group of investors buy a company “largely financed by debt.”
Reader: Please go on and review the additional terms provided in the next article entitled, “Useful Stock Market Terminology: M – Z.
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