37 Key Basic Stock Market Terms 4.

Bear Market
1. Annual Report Trading talk for the stock market
being in a downward trend, or a
An annual report is a report
period of falling stock prices. This
prepared by a company that’s
is the opposite of a bull market. If
intended to impress shareholders.
a stock price plummets, it’s very
It contains tons of information
bearish.
about the company, from its cash
flow to its management strategy. 5. Beta
When you read an annual report,
A measurement of the relationship
you’re judging the company’s
between the price of a stock and
solvency and financial situation.
the movement of the whole
2. Arbitrage market. If stock XYZ has a beta of
1.5, that means that for every 1
Arbitrage refers to buying and
point move in the market, stock
selling the same security on
XYZ moves 1.5 points, and vice
different markets and at different
versa.
price points. For instance, if stock
XYZ is trading at $10 on one 6. Blue Chip Stocks
market and $10.50 on another, the
The stocks behind large, industry-
trader could buy X shares for $10
leading companies. Blue chip
and sell them for $10.50 on the
stocks offer a stable record of
other market, pocketing the
significant dividend payments and
difference.
have a reputation of sound fiscal
3. Averaging Down management. The expression is
thought to have been derived from
When an investor buys more of a
blue gambling chips, which is the
stock as the price goes down. This
highest denomination of chips
makes it so your average
used in casinos.
purchase price decreases. You
might use this strategy if you 7. Bourse
believe that the general
This stock market term is a little
consensus about a company is
murky. Technically, it’s just
wrong, so you expect the stock
another name for the stock market
price to rebound later.
and originates from a house in
which wealthy men gathered to
trade shares. However, when you
hear it in today’s conversations 12. Day Trading
about the stock market, it usually
The practice of buying and selling
either refers to the Paris stock
within the same trading day,
exchange or to a non-U.S. stock
before the close of the markets on
exchange.
that day, is called day trading. This
8. Bull Market is my primary trading strategy,
although I have a long-term
When the stock market as a whole
portfolio, as well. Traders who
is in a prolonged period of
participate in day trading are often
increasing stock prices. It’s the
called “active traders” or “day
opposite of a bear market. A
traders.”
single stock can be bullish or
bearish too, as can a sector, which
I’ll describe later on.
13. Dividend
9. Broker
A portion of a company’s earnings
A person who buys or sells an that is paid to shareholders, or
investment for you in exchange for people that own that company’s
a fee (a commission). stock, on a quarterly or annual
basis. Not all companies pay
10. Bid
dividends. For instance, if you
The bid is the amount of money a trade penny stocks, you’re likely
trader is willing to pay per share not after dividends.
for a given stock. It’s balanced
14. Exchange
against the ask price, which is
what a seller wants per share of A place in which different
that same stock, and the spread is investments are traded. The most
the difference between those two well-known exchanges in the
prices. United States are the New York
Stock Exchange (NYSE) and
11. Close
the Nasdaq.
The NYSE and Nasdaq close at 4
15. Execution
p.m., with after-hours
trading continuing until 8 p.m. The When an order to buy or sell has
close simply refers to the time at been completed, the trader has
which a stock exchange closes to executed the transaction. If you
trading. put in an order to sell 100 shares,
this means that all 100 shares 19. Initial Public Offering (IPO)
have been sold.
An IPO is the first sale or offering
16. Haircut of a stock by a company to the
public. It happens when a
In its most simplest stock market
company decides to go public
terms, a haircut is an extremely
rather than remain solely owned
thin spread between the bid and
by private or inside investors.
ask prices of a given stock. It can
The Securities Exchange
also refer to a situation in which a
Commission (SEC) has strict rules
stock price gets reduced by a
that companies must follow before
specific percentage for margin
issuing an IPO.
trades or other purposes.
20. Leverage
17. High
I’m not a fan of leverage, but it’s
A high refers to a market
good for you to know this stock
milestone in which a stock or
market term. When you use
index reaches a greater price point
leverage, you borrow shares in a
than previously. Record highs can
stock from your broker with the
signal that a stock or index has
goal of increasing your profit. If
never reached the current price
you borrow shares and sell them
point, but there are also time-
all at a higher price point, you
constrained highs, such as 30-day
return the shares and keep the
highs.
difference. It’s a dangerous game
18. Index that I urge you to avoid playing.
A benchmark that is used as a 21. Low
reference marker for traders and
Low is the opposite of high. It
portfolio managers. A 10 percent
represents a lower price point for a
return may sound good, but if the
stock or index.
market index returned 12 percent,
then you didn’t do very well since 22. Margin
you could have just invested in an
A margin account lets a person
index fund and saved time by not
borrow money (take out a loan,
trading frequently. Examples are
essentially) from a broker to
the Dow Jones Industrial
purchase an investment. The
Average and Standard & Poor’s
difference between the amount of
500.
the loan and the price of the or sell 100 shares of stock, for
securities is called the margin. instance.
Trading on margin can be 26. Pink Sheet Stocks
dangerous because, if you’re
The term “pink sheets” refers most
wrong about the direction in which
commonly to penny stocks, which
the stock will go, you can lose
are traded at $5 per share or less.
significant cash. You must often
They’re also called over-the-
maintain a minimum balance in a
counter stocks because that’s how
margin account.
they are traded. You won’t find
23. Moving Average them on the Nasdaq or NYSE, or
any other major exchange, and
A stock’s average price-per-share
they’re often smaller companies.
during a specific period of time is
called its moving average. Some 27. Portfolio
common time frames to study in
A collection of investments owned
terms of a stock’s moving average
by an investor makes up his or her
include 50- and 200-day moving
portfolio. You can have as few as
averages.
one stock in a portfolio, but you
24. Open can also own an infinite amount of
stocks or other securities.
In the United States, the stock
market opens at 9:30 a.m. Eastern 28. Quote
time every day. It’s based on the
Information on a stock’s latest
trading hours of the Nasdaq and
trading price tells you its quote.
NYSE. Pre-market trading hours
This is sometimes delayed by 20
begin at 4:30 a.m. Eastern, but
minutes unless you’re using an
most traders don’t begin paying
actual broker trading platform.
attention until about 8 a.m.
Essentially, open refers to the time 29. Rally
at which people can begin trading A rapid increase in the general
on a particular exchange. price level of the market or of the
25. Order price of a stock is known as a
rally. Depending on the overall
An investor’s bid to buy or sell a
environment, it might be called a
certain amount of stock or option
bull rally or a bear rally. In a bear
contracts constitutes an order.
market, upward trends of as little
You have to put an order in to buy
as 10 percent can qualify as a volatile market if you see patterns
rally. that indicate a sharp downward
turn for a stock.
30. Sector
33. Spread
A group of stocks that are in the
same industry belong to the same This is the difference between the
sector. An example would be the bid and the ask prices of a stock,
technology sector, which includes or the amount for which someone
companies like Apple and is willing to buy it and the amount
Microsoft. Some traders prefer to for which someone is willing to sell
trade in a specific sector, such as it. For instance, if a trader is willing
energy, because they know the to trade XYZ stock for $10 and a
industry well and can better buyer is willing to pay $9 for it, the
predict stock price fluctuations. spread is $1.
31. Share Market 34. Stock Symbol
Any market in which shares of a A stock symbol is a one- to four-
particular company are bought character alphabetic root symbol
and sold. The stock market is an that represents a publicly traded
example — and probably the most company on a stock exchange.
significant example — of a share Apple’s stock symbol is AAPL,
market. while Walmart’s is WMT.
32. Short Selling 35. Volatility
When you short-sell a stock, you The price movements of a stock or
borrow shares from someone else the stock market as a whole.
with the promise to return them at Highly volatile stocks are those
a point down the road. You then with extreme daily up and down
sell the stock for a profit. It’s a way movements and wide intraday
to take advantage of a stock that trading ranges. This is often
you believe will decrease in price. common with stocks that are thinly
After you sell short, you can buy traded or have low trading
back the shares at the lower price volumes.
point and take the difference in
I’m a big fan of high-volatility
price as your profit.
stocks because I can make a big
I use short selling on a regular profit off spikes or dips, depending
basis. It’s often a smart move in a on how I’m trading, in a short
period of time. High volatility often
makes trading more exciting, but
it’s also risky if you’re
inexperienced.
36. Volume
The number of shares of stock
traded during a particular time
period, normally measured in
average daily trading volume.
Volume can also mean the
number of shares you purchase of
a given stock. For instance, buying
2,000 shares of a company is a
higher-volume purchase than
buying 20 shares.
37. Yield
Often refers to the measure of the
return on an investment that is
received from the payment of a
dividend. This is determined by
dividing the annual dividend
amount by the price paid for the
stock. If you bought stock XYZ for
$40 per share and it pays a $1.00-
per-year dividend, you have a
“yield” of 2.5 percent.