The ChoosaBroker Trading Academy

6.2. Commonly Used Terms

Whether you are a newbie investor or a savvy pro, it always helps to have a solid glossary at your fingertips. Here is a succinct list of 50 key terminologies that you will repeatedly encounter in your journey through the stock market.

GLOSSARY OF STOCK MARKET TERMS

  1. All-or-Nothing Order: An order to buy or sell a security which instructs the broker to fill the order in its entirety or not execute at all.
  1. Annual Report:A comprehensive publication, including financial statements and a report on operations, which is released by a company at the end of its fiscal year.
  1. Arbitrage: The simultaneous buying and selling of a stock in two different markets to take advantage of a difference in their pricing.
  1. Ask:The lowest price that a seller of a stock is willing to accept. Also often referred to as “offer” price.
  1. Averaging Down: The practice of buying more shares of a stock as its price goes down so that the average purchase price is reduced.
  1. Basis Point: One-hundredth of a percentage point. For example, the difference between 4.50% and 4.25% is 25 basis points.
  1. Bear Market: Prolonged period of general decline in stock prices.
  1. Beta: A measure of volatility in a stock in comparison to the market as a whole. If stock ABC has a beta of 2, it means that for every 1 point move in the underlying market, stock ABC moves by 2 points.
  1. Bid: The highest price that a buyer is willing to pay for a stock. It is the opposite of “ask.”
  1. Blue Chip Stocks:Shares of very large companies that have a long history of sound financial performance.
  1. Book: An electronic record of all pending buy and sell orders related to a particular stock.
  1. Bull Market:Prolonged period of general rise in stock prices. It is the opposite of a bear market.
  1. Broker: An individual or an entity that buys or sells shares for you in the stock exchange and charges a fee for the same.
  1. Certificate: A physical document showing ownership of a stock.
  1. Closing Price: The final price of a stock at the end of a trading day.
  1. Commission: The fee charged by a broker or an investment advisor for buying or selling securities on behalf of a client.
  1. Day Trading: The practice of buying and selling of shares within the same trading session. Traders that participate in day trading are called “day traders.”
  1. Defensive Stock: Refers to stocks that provide consistent dividends and stable earnings even during the periods of economic downturn.
  1. Diversification: A risk management technique that seeks to include a wide variety of investments within a portfolio so that adverse movement in any one security does not significantly impact the overall performance of the portfolio.
  1. Dividend: A portion of earnings that some companies pay back to their shareholders, generally on a quarterly or annualized basis.
  1. Dollar Cost Averaging: A market strategy whereby a fixed amount of dollars are invested in a specific stock at regular intervals of time. As compared to purchasing a constant number of shares at set intervals, dollar cost averaging results in a lower average cost per share purchased.
  1. Exchange:An organised and regulated marketplace for buying and selling of shares of companies. The New York Stock Exchange is by far the world’s biggest stock exchange.
  1. Execution: When an order to buy or sell a stock has been completed, the order is said to have been executed.
  1. Futures: Exchange traded derivative contracts that enable buying or selling an underlying stock at a future date.
  1. Good-Till-Cancelled Order:A GTC order is an order to buy or sell a security which remains in effect until it gets executed, or is cancelled by the trader.
  1. Good-Till-Date Order: A GTD order is a conditional request made to the broker to keep an order in the system until it is either filled or till a specified date, at which time it will get automatically cancelled.
  1. Growth Stock: Shares of companies that have enjoyed better-than-average earnings and revenue growth over recent years and are expected to continue their outperformance.
  1. Hedge: The act of limiting the extent of financial loss by taking an offsetting position in a related security.
  1. Index:A stock index is computed from the prices of selected stocks, typically by calculating their weighted average. Traders and investors track it to get a sense of the broad direction in a market. It is also utilized as a benchmark to compare the returns of a portfolio. The Dow Jones Industrial Average and Standard & Poor’s 500 are two of the world’s most followed stock market indices.
  1. Initial Public Offering (IPO):A company’s first sale or offering of its shares to the general public.
  1. Limit Order:An order to buy or sell a stock at a specified price or better. A limit order sets a maximum price the buyer is willing to pay, and a minimum price the seller is willing to accept for it.
  1. Liquidity: This refers to how easily a stock can be bought or sold in the market.
  1. Margin:A margin account allows an investor to borrow money from a broker to buy or sell in the stock market. The difference between the amount borrowed, and the total value of the securities transacted, is called the margin.
  1. Market Capitalization:Represents the total value of a company’s outstanding shares. Market cap is determined by multiplying the number of shares outstanding with the current market price of one share of the company.
  1. Order: An investor’s bid to buy or sell a certain quantity of a stock.
  1. Over-The-Counter Market:The OTC market is a network of securities dealers who engage in trading of shares of companies that are not listed on a stock exchange.
  1. Portfolio: A collection of investments that an investor owns. A model portfolio consists of a diversified basket of stocks and several varieties of fixed income securities.
  1. Quote: Information relating to a stock’s latest trading price. With the introduction of online trading platforms, stock quotes are now available virtually on a real-time basis.
  1. Rally: A rapid and substantial rise in the general price level of a market, or of the price of a stock.
  1. Risk:In stock trading parlance, risk signifies the likelihood of suffering a future loss.
  1. Sector: A group of stocks that operate within the same business in an economy. A notable example would be the “Technology” sector that includes stocks of companies like Apple, Microsoft and Amazon.
  1. Short Selling: The act of selling a security that the selling trader does not own. Short selling as a trading strategy is motivated by the belief that a stock’s price will decline in value, enabling the trader to buy it back at a lower price, thereby registering a profit.
  1. Spread:This is the difference between the bid price and the ask price of a stock.
  1. Stock Symbol:Denotes a unique series of letters that are assigned to a particular stock for trading purposes. For example, Apple’s stock symbol is AAPL.
  1. Tick: The market slang for minimum spread. The value of 1 tick depends on the price of a stock, and can be a half-cent, one cent or five cents.
  1. Thin Market:A market condition during which comparatively fewer bids to buy, or offers to sell, or both, are available.
  1. Trading Session:The time period during which a stock exchange is open for trading.
  1. Volatility: A statistical measure of the change in a stock’s price over a defined period of time. Highly volatile stocks exhibit extreme up and down movements and have wide daily trading ranges.
  1. Volume:</bRefers to the number of shares of a stock traded during a defined time period. Examples include hourly volume, daily volume, weekly volume etc.
  1. Yield: Percentage measure of the return on an investment. A stock’s yield is calculated by dividing the annual dividend amount received by the stock’s current market price.

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