Making sense of the stock market is far from easy. If you’re a new investor, you’re likely to feel overwhelmed at some point.
Struggling to figure out where to begin? The best thing you can do is learn the language of the trade. By familiarizing yourself with stock terminology, you’ll be able to make sense of what everyone else is doing.
If you’re reading this article, you’re probably familiar with the basics. Examples include terms such as “bid,” “sell,” and “volume.” Here are 5 other stock terms every investor should know.
1. Volatility
As you know, stocks can move up or down. To determine the speed at which these movements occur, we use the term “volatility.” For most people, a volatile market will be too risky to invest in.
Still, some investing wizards believe that volatility can be a good thing. Oftentimes, volatility will bring down the market price of a great company. This is a good opportunity for value investors to invest in said company.
2. Bull Market
The common definition of a “bull market” is a market where stock prices are rising. These markets are difficult to predict, but they usually take place in a strong economy. They tend to last for months, or even years.
The opposite of a bull market is a “bear market.” In a bear market, most investors will expect stock prices to fall. Bad stocks will take most of the beating here, which is why smart investors like to sell them short.
3. Dividends
Dividends are a part of a company’s earnings that get distributed to shareholders. This usually happens on a quarterly or annual basis. They’re always paid in cash and provide current period income.
For most investors, dividends will be a key part of their total investment return. Once you get your dividends, you can deposit them into your bank account or reinvest them in the company that’s distributing them.
4. Margin Trading
This one is all about investing with borrowed money. In most cases, you’ll borrow money from a licensed broker or a third-party institution. If you’re willing to take risks, margin trading may be of interest to you.
To take advantage of this type of trading, you’ll need a margin account. In return for your securities, the broker will borrow you money. The difference between the loan amount and your securities is also known as a margin.
5. IPO
For those unfamiliar with the term, IPO stands for “initial public offering.” This refers to the process of releasing a private company’s shares to the general public. This is usually done to raise a certain amount of capital.
Back in the day, investors who jumped on the IPO bandwagon early usually got great returns. These days, things are a bit different. Major companies still get big first-day gains, but often end up disappointing in the long run.
More Stock Terms to Know
The above stock terms are only the tip of the iceberg. To master the stock market, you’ll also need to know more about liquidity, GTC orders, blue-chip stocks, and so on. This task may seem daunting, but it’s absolutely necessary.
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