Stock investment can be a winning or losing game. The trick is not only learning the rules, but the terminology. If you’ve never played the stock market, chances are you’ve heard some of the terms, but don’t know what they mean. The truth is stock investment terms can be quite confusing and there are many to learn. Let’s take a closer look at stock investment terminology for beginners.
Stock Terms
There are many terms that discuss the types of stocks, descriptions of stocks, and stock activity. Here are just a few terms beginners should be aware of:
Ask: Think of the ask price as the lowest a seller is willing to go when you’re haggling for something. In this case, you’re haggling for stock.
Bid: On the other end of the spectrum is the bid price. This is the most a buyer is willing to pay for a stock.
Book Value: This is something you must consider before purchasing stock in a company. The book value is what the company is worth after liabilities are subtracted.
Dividend: Another term you should be familiar with is dividend. Some companies pay shareholders quarterly or annually based on a portion of the company’s profits – this is known as a dividend.
Market Capitalization: It’s important to be aware of what a company’s market is capped at. This can be done by calculating the number of outstanding shares in the company by the current stock price.
P/E Ratio: You need to understand where your money is going when you buy a stock. One way to determine how much you’re actually paying, based on the profit of the company, is to consider the P/E ratio. This is done by consider what the current profit per share is compared to the cost of each share. For example, if the company is seeing a $4 profit per share and the shares are selling at $40 that’s a P/E ratio of 10, which means you’re paying 10 times what’s being earned.
Spread: The spread is the amount between the Ask and Bid price.
Stock: Put simply, the ownership of a company is divided into shares. These shares are sold so that the company can raise money and these are known as stock. You own “stock” in the company when you buy shares.
Yield: If you’re investing in companies that use dividends, you need to know what the yield is. The yield is how much percentage you can expect to see from your dividends.
Market Terms
Blue Chip: To be a blue chip company, the company must have showed consistent rise over its history. For example, Verizon Communications is a blue chip company.
Dow Jones Industrial Average: The Dow Jones is a list of blue chip companies.
NASDAQ: This is where company shares of technology companies are bought and sold.
People Terms
Bear: Think of a bear as a pessimist. Bears believe that the stock market will decline.
Bull: Bulls are the opposite of bears and the optimists of the stock market, believing that it will rise.
Broker: A broker is someone who buys and sells stocks for the investor.
It can be a lot to take in, but these terms are essential if you hope to be successful in stock investments. Learn them and understand them and you’ll have an easier time working with your own broker.
About the Author: Virgen Swor loves studying investments and recommends everyone brush up on their terminology before they start to consider the best stocks to buy, what broker to work with, or anything else. Knowledge is power!