Starting a stock market investing journey may be fascinating and intimidating at the same time, especially when you’re faced with an overwhelming number of phrases and jargon. But in order to understand the complexities of the market and make wise investing decisions, you must comprehend these concepts.
In this blog post, we will cover the most important stock market terms and definitions.
Terms Used in the Stock Market
- Stock: When you purchase a stock, you’re essentially buying a share of ownership in a company. Stocks are also known as equities.
- Market Capitalization: Market cap refers to the total value of a company’s outstanding shares in the stock market. It’s calculated by multiplying the current stock price by the total number of outstanding shares.
- Dividend: This is a portion of a company’s earnings distributed to shareholders. Dividends are usually paid out regularly and can provide a steady stream of income to investors.
- Bonds: Bonds are debt securities issued by governments or corporations to raise capital. When you buy a bond, you’re essentially lending money to the issuer in exchange for periodic interest payments and the return of the bond’s face value at maturity.
- Volatility: Volatility measures the degree of variation in a stock’s price over time. High volatility implies greater price fluctuations, while low volatility suggests more stable prices.
- ETFs (Exchange-Traded Funds): ETFs are investment funds that trade on stock exchanges, similar to individual stocks. They typically hold a basket of assets such as stocks, bonds, or commodities and offer investors diversified exposure to various markets or sectors.
- Index: An index is a statistical measure of the performance of a specific market or a segment of the market. Examples include the S&P 500, which tracks the performance of 500 large-cap US stocks, and the FTSE 100, which tracks the performance of the 100 largest companies listed on the London Stock Exchange.
- Volatility: Volatility refers to the degree of variation in the price of a stock or other financial instrument over time. High volatility implies greater risk, while low volatility suggests stability.
- Blue-chip Stocks: Blue-chip stocks are shares of well-established, financially stable companies with a long history of reliable performance. They’re often considered safer investments compared to smaller, riskier companies.
- Bear Market: A bear market is characterized by a prolonged period of declining stock prices, usually accompanied by widespread pessimism among investors.
- Bull Market: Conversely, a bull market is characterized by a sustained rise in stock prices, typically driven by strong investor confidence and economic growth.
- Earnings Per Share (EPS): EPS is a company’s profit divided by its outstanding shares. It indicates how much profit a company generates for each share of its stock.
- Index: An index is a benchmark that tracks the performance of a group of stocks. Examples include the S&P 500, which tracks 500 large-cap US stocks, and the FTSE 100, which tracks the top 100 companies listed on the London Stock Exchange.
- Diversification: Diversification is a risk management strategy that involves spreading investments across different asset classes, sectors, and geographic regions to reduce the impact of any single investment’s performance on the overall portfolio.
- Broker: A broker is a firm or individual that facilitates the buying and selling of financial securities on behalf of investors. Online brokers like Trove Finance provide platforms for investors to trade stocks, bonds, and ETFs.
- ROI (Return on Investment): ROI measures the profitability of an investment relative to its cost. It’s calculated by dividing the net profit (or loss) generated by the investment by the initial investment cost and expressing the result as a percentage.
- DIP ( Drop in Price): A DIP refers to a situation where the price of a stock decreases from its previous level. This can happen for a variety of reasons, such as negative news about the company, a poor earnings report, or broader market conditions.
- Stock-split: A stock split occurs when a company divides its existing shares into multiple shares. For example, in a 2-for-1 stock split, each existing share is split into two shares.
Read: Stock Split: What Does it Mean?
Conclusion
Navigating the stock market can seem overwhelming at first, but with the right knowledge and tools, you can build a successful investment portfolio. As a beginner, by familiarizing yourself with terms like “dividends,” “volatility,” and “market capitalization,” you can make informed decisions and mitigate risks effectively.
So, what are you waiting for? Sign up with Trove Finance today and enjoy a simplified investment journey!
