Getting started with trading can be exciting. As a consistently evolving market, you will likely find many opportunities.
However, being unfamiliar with the various terms used in the stock market can make it challenging for you to go about trading.
Understanding essential stock market terms will make sure that you are able to make smart decisions quickly. So, let’s dive in and understand some commonly used terms.
Top 20 Terms Every Trader Should Know
1. Bid: The highest price a buyer is willing to pay at a time to buy a specific number of shares of stock. Another term is “ask,” which is the lower price a seller is willing to sell a stock for. The bid price is usually lower than the asking or “offer” price.
2. Bid-ask spread: The difference between the bid price and the asking price. It is placed against a given security.
3. Bull market: A specified time period in the financial market when the price rises continuously for an asset or a security. An increase in stock prices of 20% is also termed a bull market.
4. Market index: An assumed portfolio of investment holdings that represent a part of the financial market.
5. Bear market: An extended drop in investment prices. It is observed when the market index falls by 20% or more from its recently recorded high.
6. Limit order: An order to buy or sell a stock that comes with a limit on the maximum price to be paid (buy limit) or the minimum price to be sold at (sell limit).
7. Market order: An order that ensures that a stock is purchased or sold at the best available price.
8. Good Till Canceled Order: Buying or selling stock until the order has been completed or canceled. They stay in order until the trader makes a move.
9. Day order: It is a condition put on an order for a trade at a specific price that lasts until the end of the trading day if it is not completed.
10. Volatility: The rate at which a stock’s price rises or falls over a selected period of time. A higher stock price volatility indicates higher risk involvement, so this helps the investor predict future fluctuations in the market.
11. Liquidity: It indicates how easily an asset or security can be converted into cash without impacting its market price.
12. Trading volume: The number of assets or securities traded when the market opens.
13. Market capitalization: The total value of a company’s shares of stock. It is calculated by multiplying the price of a stock by the company’s total number of outstanding shares.
14. Public float: The portion of outstanding stocks in a public company held by public investors.
15. Outstanding shares: A company’s stocks that all the shareholders currently hold. These shares are listed as Capital Stock on a company’s balance sheet.
16. Initial Public Offering (IPO): Issued when a private company sells shares of the company’s stock to the public. It indicates that a company’s ownership is changing from initial private ownership to public ownership.
17. Secondary offering: Buying and selling shares in a secondary market among investors. When an owner sells their shares, the company’s ownership undergoes no dilution.
18. Blue Chip Stocks: A stock issued by large and financially strong companies. These companies have a reputation for having dependable earnings.
19. Derivative: A contract that provides value based on the assets involved, which may be a commodity, stock, or even interest rate.
20. Dividend yield: A way to compare a company’s stock price with the dividend it pays to its investor. It is a ratio that represents the amount that a company pays in dividends each year over its stock price.
A clear and complete understanding of important stock market terms gets you ready to make quick and smart decisions and ensure a positive trading experience.