40+ Stock Market Terms: Essential Vocabulary for Investors
Cash Equivalents are investments or assets a company can sell fast to generate cash. Value investors look at cash and short-term investments because they show how much money a company has. A company with lots of Cash and Short-term Investments will not have to borrow money to cover emergency expenses. In addition, it costs less for companies with enormous amounts of cash and short-term investments to borrow money.
Momentum Indicators
An Initial Public Offering (IPO) is the first group of a company’s shares sold to the public on stock exchanges. For example, the S&P 500 measures American economic growth by containing the 500 largest publicly traded companies in the United States. EMH believers think that the share price of stocks and market capitalization are accurate reflections of value. Value investors think the market reflects investors’ opinions and is not an accurate value assessment. EMH believers think Mr. Market is always right, while value investors think Mr. Market is insane.
Understanding stock trading terminology is essential for anyone looking to navigate the markets effectively. Terms like ‘margin account’, ‘ask price’, ‘pattern day trader’, and ‘resistance level’ are not just jargon; they represent critical concepts that impact trading decisions. Knowing these terms helps in understanding market analysis, news events, and regulations. For beginners, grasping these basics is the first step towards making informed and confident trading decisions.
- Extreme volatility can be caused by a change in the market sentiment due to a market event, news, etc.
- A type of private equity investment that provides funding to early-stage companies with high growth potential, often in exchange for equity in the company.
- Clinical endpoints can include measures such as disease progression, symptom relief, or survival rates.
- A stock warrant is a security that gives the holder the right, but not the obligation, to purchase shares of common stock at a specified price within a certain time frame.
- If the company is scaling at a good speed, other investors get attracted towards buying its shares.
Hedge Fund
Economic bubble is also known as a market bubble or a financial bubble. This bubble bursts after a quick correction in the prices of assets. It saves the investor from investing all of his capital at a single price point. Dollar-cost averaging is one of the most renowned investment strategies.
Trading Bots carry out enormous numbers of transactions in today’s stock market. Investors can buy Trading Bots online and deploy them without elaborate computer systems. In Speculation, the investor only makes money by selling the shares. Speculation, or speculative trading, involves purchasing stocks anticipating a price change. Speculators hope to make money by selling the stock at a higher price or shorting it.
- Meanwhile, using longer periods, such as 21 to 30, suits long-term investors looking to capture major trends.
- The stock market is a crucial part of a country’s economy as it fuels the economy with investments.
- For instance, the Pattern Day Trader rule requires traders to maintain a minimum account balance, which is essential for managing the inherent risks of day trading.
- An option that automatically terminates if the underlying asset’s price reaches a specified level, known as the knock-out barrier.
- A trading strategy in which a trader buys and sells securities within a single trading day, with the goal of profiting from short-term price movements.
You choose your entry and exit points, your target prices, and set your own trailing stops. This gives you a level of control that long-term investors just don’t have. To excel in day trading, you’ll require a keen analysis of market trends. Whether you’re scalping or swing trading, understanding the market’s direction is crucial.
VICI Properties Inc. (VICI) Advances While Market Declines: Some Information for Investors
Market volatility refers to the wide fluctuations in the prices of stocks both upwards and downwards. Market volatility indicates an instability in the market and it is considered to be a risky time for trading. Extreme volatility can be caused by a change in the market sentiment due to a market event, news, etc. The ability of an asset to be convertible into cash with ease is called liquidity.
If a lot of buyers and sellers are actively trading stock, you’ll generally find it easier to enter and exit a position. They can provide great profit opportunities, but also come with greater risk. The difference between the highest price at which someone is willing to buy shares and the lowest price someone is willing to sell shares. RSI divergence occurs when the indicator lags behind price, while RSI reversal signals result from price lagging behind the indicator. True reversal signals are rare and can be difficult to separate from false alarms.
Beginners should know about this instrument as bonds are an alternate investment option. Investors favor bonds at the time of market uncertainty as they offer a guaranteed rate of interest even in the difficult times. Beta is commonly used by investors, professional analysts and agencies to assess the risk of a portfolio. Beta is a measure which compares a stock’s historical volatility to the overall market. A beta of higher than 1 shows that the stock is more volatile and a beta less than 1 shows that the stock is less volatile compared to the overall market. The term “Bear market” with reference to the stock market was first used in the book “A Plan of the English Commerce” by Daniel Defoe in 1720.
Earnings Per Share
The term “Exchange” comes from an old French word “eschangier” which means ‘to exchange or trade”. Initially, an exchange referred to a place where traders used to meet to buy and sell physical goods. Dividend yield as a term is most commonly used by financial analysts and investors at the time of assessing their portfolios. This term is commonly used by analysts and investors for analyzing the fundamentals of a company’s financing model. Debt-to equity ratio has become a fundamental part of analyzing the company.
New York Stock Exchange (NYSE)
The RSI, especially when used in conjunction with other technical indicators, can help traders make better-informed trading decisions. Similarly, a beginner must know about terms like stop loss and limit order to trade efficiently. The stock market always punishes 40 stock market terms the innocent and only professionals earn money from the market.
Post-Modern Portfolio Theory (PMPT)
Stock options as a term is used regularly by traders and investors. Stock options are derivative contracts which give its investors the right, but not the obligation to buy or sell a stock at a specified price and time. A stock option’s value is dependent on the price of its underlying stock. Investors use these options as tools for hedging against their portfolios. Risk tolerance refers to the maximum risk capacity of an investor/ an institution. Risk tolerance is one of the most important factors of investing and every wise investment decision is taken after considering this factor.
From tracking dividend payments to interpreting annual report & accounts, every trader benefits from knowing the language of the market. Understanding stock market terminology isn’t just helpful — it’s a core skill for every trader. A moving average is a technical indicator used by traders and investors for identifying the trend of a particular stock. Moving average is also used to find out potential support and resistance levels in a stock. It is calculated by adding up all the price points in a specific period and dividing it with the number of time periods.
Naked Shorting can also refer to stocks that do not exist, such as options to buy IPO shares. Modern investors view Mr. Market as manic-depressive or rapidly swinging from one mood to another. Others believe Mr. Market gets high on different kinds of drugs before investing. Modern Portfolio Theory (MPT), or mean-variable analysis, is the belief that investors can reduce risks and increase returns through selective diversification. Market Capitalization is the monetary value of all a company’s stock shares. Using margin can be risky, and traders could owe more money than invested.
A stock market index that measures the performance of 500 large publicly traded companies in the US, often used as a benchmark for the overall stock market. A type of investment vehicle that pools money from many investors to buy a diversified portfolio of securities, such as stocks, bonds, or other assets. A technical analysis tool that calculates the average price of a security over a specified period, often used to identify price trends and potential support and resistance levels. A technical indicator that measures the cumulative flow of money into a security over time, taking into account both price and volume changes. An upward-sloping accumulation line indicates strong buying pressure, while a downward-sloping line suggests selling pressure. The market volume or trading volume is the number of stocks traded in the markets or exchanges in a period.