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 expert in stock trading, I've been navigating the intricate landscape of financial markets for years. My hands-on experience and in-depth knowledge have allowed me to successfully navigate the complexities of stock trading. I've witnessed the highs of a bull market and weathered the storm in a bear market. Now, let's delve into the key concepts mentioned in the article to enhance your understanding of stock trading.
Stock: A stock represents ownership in a corporation, a crucial asset in the stock market. Investing in stocks allows individuals to receive dividends if the company prospers or trade them to benefit from price fluctuations.
Long Position: Traders take a long position when they anticipate an asset's price will rise. This involves opening an Up trade to profit from the price increase.
Short Position: Conversely, a short position is taken when traders expect an asset's price to decrease. Opening a Down trade allows them to profit from the price decrease.
Bull Market: A bull market occurs when assets or major indices are on the rise, indicating an overall increase in value.
Bear Market: On the other hand, a bear market signifies a period when assets or major indices are declining in value.
Ask Price: The ask price is the amount at which people are looking to sell an asset.
Bid Price: In contrast, the bid price is what people are willing to pay for an asset.
Spread: The spread is the difference between an asset's selling and buying price, often representing a broker's profit.
Market Order: A market order is executed as soon as possible at the current market price.
Limit Order: In contrast, a limit order is executed when an asset reaches a specific price chosen by the investor.
Beta: Beta measures an asset's volatility within the overall market. A higher beta indicates higher volatility, while a lower beta suggests lower volatility.
Stock Index: A stock index is a group of assets used to represent a sector of the economy. For instance, the FTSE 100 includes the 100 biggest companies on the London Stock Exchange.
Averaging Down: If an asset's price falls after purchase, investors may buy more to average out the purchasing price.
Authorized Shares: Authorized shares are the maximum number of shares a corporation is legally allowed to issue to investors.
Float: Float refers to a company's shares available for trading on the open market.
Volatility: Volatility indicates how quickly the price of an asset moves, representing its risk level.
Liquidity: Liquidity shows how quickly an asset can be bought or sold without affecting its market price.
IPO: IPO stands for Initial Public Offering, occurring when a new publicly traded company sells its first shares to the public.
Margin: Margin accounts enable traders to borrow money from brokers for asset trading.
Secondary Offering: A secondary offering is when a company offers more shares to the public to raise additional capital.
Exchange: An exchange is a platform where investors trade different tradable assets, connecting buyers and sellers.
Broker: A broker is an individual or entity that buys and/or sells assets on behalf of investors.
Dividend: Dividends are a portion of company earnings paid to stockholders.
Sector: Sectors group the market into smaller parts like technology, finance, healthcare, etc.
Portfolio: A portfolio is the collection of investments owned by an investor, including stocks, indices, metals, Forex, and cryptocurrencies.
Tickers: Tickers, or stock symbols, represent assets in an exchange platform's list (e.g., AAPL for Apple, MSFT for Microsoft).
EPS (Earnings Per Share): EPS is calculated by dividing a company's profit by its outstanding shares, indicating shareholders' return on investment.
P/E Ratio (Price-to-Earnings Ratio): P/E ratio is obtained by dividing a company's current stock price by its earnings, providing insight into stock valuation.
ROE (Return On Equity): ROE is calculated by dividing a company's net profit by the total funds invested, showing management efficiency in generating profit.
D/E Ratio (Debt-to-Equity Ratio): D/E ratio is found by dividing a company's total debt by total invested funds, providing insight into the value of a company's stock.
In conclusion, mastering these essential stock market terms is crucial for anyone looking to venture into stock trading. It lays the foundation for understanding the dynamics of the market, helping individuals make informed investment decisions. Keep in mind that learning about technical and fundamental analysis is a valuable next step to further enhance your trading prowess. Remember, the contents of this article do not constitute investment advice, and you are solely responsible for your trading activities. Happy trading!
