The stock market is an exchange that allows people to buy and sell stocks and companies to issue stocks. A stock represents the company’s equity, and shares are pieces of the company.
When people talk about buying and selling stock, they mean that they’ve bought or sold one or more shares of a particular stock. The purpose for the trader is to make money.
Stock market terms are industry - specific jargon for the securities industry. When experts and amateurs talk about trading stocks, they use these stock market terms to speak specifically about strategies, charts, patterns, indices, and other elements of the stock trading industry.
If you are one of those people who do not understand Stock market terms when standing among people who are discussing numbers and strategy, here are a few terms that you should know to understand and contribute in the conversation better.
1. Annual report: An annual report is a report prepared by a company that’s intended to impress shareholders. It contains tons of information about the company, from its cash flow to its management strategy. When you read an annual report, you’re judging the company’s solvency and financial situation.
2. Arbitrage: Arbitrage refers to buying and selling the same security on different markets and at different price points. For instance, if stock XYZ is trading at $10 on one market and $10. 50 on another, the trader could buy X shares for $10 and sell them for $10. 50 on the other market, pocketing the difference.
3. Averaging down: When an investor buys more of a stock as the price goes down. This makes it your average purchase price to decrease. You might use this strategy if you believe that the general consensus about a company is wrong, so you expect the stock price to rebound later.
4. Bear market: Trading talk for the stock market being in a downward trend, or a period of falling stock prices. This is the opposite of a bull market.
5. Broker: A person who buys or sells an investment for you in exchange for a fee (a commission).
6. Dividend: A portion of a company’s earnings that are paid to shareholders, or people that own that company’s stock, on a quarterly or annual basis. Not all companies pay dividends. For instance, if you trade penny stocks, you’re likely not after dividends.
7. Sensex: A figure indicating the relative prices of shares on the Mumbai (Bombay) Stock Exchange.
8. Nifty: The NIFTY 50 index is National Stock Exchange of India's benchmark broad based stock market index for the Indian equity market. It represents the weighted average of 50 Indian company stocks in 12 sectors and is one of the two main stock indices used in India, the other being the BSE Sensex.
9. Quote: Information on a stock’s latest trading price tells you its quote. This is sometimes delayed by 20 minutes unless you’re using an actual broker trading platform.
10. Share market: Any market in which shares of a particular company are bought and sold. The stock market is an example — and probably the most significant example — of a share market.
Knowing your stock market terms will make you a better trader. It takes time to grasp the intricacies of securities trading, but once you do, the stock market terms above will become part of your daily vocabulary.
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