This content provides a comprehensive glossary of fundamental terms and concepts related to stock markets, investing, and financial instruments, aimed at demystifying the world of finance for beginners.
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Stock represent ownership in a company.
Each unit of a stock is called a share.
If you own 50% of YouTube stock, you own
half of YouTube. Shareholder. Someone
who owns a stock. Stock exchange. Place
where investors can buy or sell stocks.
Public company. Company whose ownership
is organized via shares of stock that
are intended to be freely traded on a
stock exchange. Bull market. Bare
market. A bull market means that prices
are rising. A bare market means that
prices are falling. They are named after
each animals attack style. Volatility,
how fast the stock price moves up and
down. Volume, number of shares of a
company traded each day. Capital, broad
term that can describe anything that
gives value to its owners. It usually
refers to money, but it can also
describe machinery, patents, etc.
Liquidity, how easily you can get into
and out of a stock. It increases with
volume. Bubble. Bubbles occur when
prices for a particular item rise far
above the item's real value due to too
much optimism. Sooner or later, the high
prices become unsustainable and they
fall dramatically until the item is
valued at or even below its true worth.
IPO. Initial price offering happens when
a private company becomes publicly
traded in order to raise money.
Dividends portion of a company's
earnings that is paid to people who own
the stock. Not every company pays
dividends. Blue chip stocks. Stock that
comes from a well-known established
company. They have a strong history of
performance and often pay dividends.
Forex foreign exchange involves trading
different currencies. Portfolio.
Collection of investments owned by an
investor. Holdings. Contents of a
portfolio. Interests. When you get or
give a loan, the one who is lending the
cash usually wants more cash than what
he initially lent. The extra cash that
has to be given is called interest.
Bond. When an investor gives a loan to a
company or a government, the investor
earns through interest. Security.
Tradable financial instruments such as
stocks and bonds. Broker. Since you
can't directly go to the stock exchanges
to buy stocks, someone will do it for
you, usually for a fee. This is called a
broker. Nowadays, they are mostly online
platforms. Going long. Betting that a
company's stock's price will [music]
increase so that you can buy low and
sell high. Asset resource with economic
value that someone owns or controls with
the expectation that it will provide a
future benefit. Commodity basic goods
interchangeable between producers such
as grains, gold, beef, oil, and natural
gas. It usually refers to raw materials.
Yield, it's what you earned from an
investment. P ratio. The price
toearnings ratio is one of the most
widely used tools that investors and
analysts use to determine a stock's
valuation. It's one indicator of whether
a stock is overvalued or undervalued.
However, the PE ratio can mislead
investors because past earnings do not
guarantee future earnings will be the
same. Likewise, projected earnings may
not actually happen. Index. It's a
method to track the performance of a
group of assets. Indexes typically
measure the performance of a basket of
stocks intended to replicate a certain
area of the market. The most famous
index is the SNP500, which tracks the
500 largest US companies. Futures
contracts that obligate parties to buy
or sell an asset at a predetermined
future date and price. The buyer must
purchase or the seller must sell the
underlying asset at the set price
regardless of the current market price
at the expiration date. Options. Options
contracts give buyers the right but not
the obligation to buy or sell depending
on the type of contract and underlying
asset at an agreed upon price and date.
Call options allow the holder to buy the
asset at a stated price within [music] a
specific time frame. Put options, on the
other hand, allow the holder to sell the
asset at a stated price within a
specific time frame. ETFs, baskets of
stocks that trade like regular stocks.
They can be passively or actively
managed. Passively managed ETFs just try
to match the underlying stocks. Actively
managed ETFs have a manager or team
making decisions on what stocks to put
in the basket, IRA. It stands for
individual retirement account and it's a
long-term savings account that
individuals with earned income can use
to save for the future while enjoying
certain tax advantages. Liability,
something a person or company owes.
[music] Penny stocks, shares valued at
less than $5. They are usually
considered highly risky. Market cap, it
refers to how much a company is worth as
determined by the stock market.
Leverage. It refers to using borrowed
money from a lender to invest. It's done
to increase the potential return of an
investment. It also greatly increases
risks. Balance sheet. Financial
statement that reports a company's
assets, liabilities, and shareholder
equity at a specific point in time. It
provides a list of what a company owns
and owes as well as the amount invested
by shareholders. Inflation, a rise in
prices, which can be translated as the
decline of purchasing power over time.
Basically, money becomes less valuable.
Bid, the highest price at which a buyer
is willing to pay. Ask, the lowest price
at which a seller is willing to sell.
Bid ask spread the amount by which the
ask price exceeds [music] the bid price.
It has to be resolved before the
transaction can take place. Black swan.
It's slang for a completely unforeseen
and unexpected event. Dead cat bounce.
It's slang for a temporary short-lived
recovery of a stock price from a
prolonged decline that is followed by
even more decline. Wales. It's slang for
investors or corporations with such
large capital that their buys and sells
make waves in the market like only
animals of gigantic size can. Unicorns.
Startups that have come to be valued at
1 billion or more. Named like this for
their incredible rarity. To the moon.
It's slang for a stock or asset rising
in price stratospherically, often
quickly. Tanking. The opposite of to the
moon. Stocks depreciating in value often
quite significantly and quite quickly.
jigged out. When a market moves into an
unfavorable position and you close out
your trade only for the market to rally
into a position where you would have
made a profit or at least not a loss.
Pump and dump. Form of fraud that
involves artificially inflating the
price of an owned stock through false
and misleading positive statements.
Pump. In order to sell the cheaply
purchased stock at a higher price, dump.
Once the operators of the scheme dump
sell their overvalued shares, the price
falls and the other investors lose their
money. Rugpull. a pump and dump in new
small cryptocurrencies, usually done by
their creators. Panic selling,
widespread selloff of a stock, a sector,
or an entire market due to fear or
overreaction rather than reasoned
analysis, usually happens when prices
start to decrease a lot, which makes the
price decrease even more. Stock
exchanges temporarily halt trading when
panic selling reaches a specified level
in an attempt to break the cycle of fear
and selling. Shorting investment
strategy that speculates on the decline
of a stock's price. The investor borrows
shares of a stock from a lender and
instantly sells them. When it's time to
give them back, the investor has to buy
back the shares to reive them to the
lender. If the price has gone down, he
keeps the difference between the initial
price and the new price. This, however,
comes with unlimited risk as the stock
price can go up infinitely and the
investor is forced to buy it back. Short
squeeze. When the stock's price
unexpectedly increases drastically over
a short period of time, the investors
who were shorting are forced to cut
losses by exiting their positions, which
means buying back the stocks to regive
them to the lender. This makes those
investors lose money, and it makes the
stock's price increase even more since
all of the short investors have to buy
it. Limit order. It's an order to buy or
sell a stock at a specific price or
better. Stop-loss order. Order placed to
buy or sell a specific stock once the
stock reaches a certain price. Long
squeeze. Basically the same thing as the
short squeeze, but those who are going
long get squeezed. This is usually
caused by the trigger of many stop-loss
orders and by people panic selling.
Market order. It's an order to buy or
sell a stock at the best available price
in the market. It typically ensures
execution, but it doesn't guarantee a
specified price. It's kind of like
buying a product without negotiating.
Good till canceled order. It's an order
to buy or sell stock that lasts until
the order is completed or cancelled. Day
order. It's an order to buy or sell a
stock at a specific price that expires
at the end of the trading day if not
completed. Averaging down. It's a
strategy that involves a stock owner
purchasing even more stocks when the
price drops. As the name says, it
decreases the average price at which the
investor purchases the stock. Fading. A
trader who deliberately goes against
market sentiment or trends. Hedge fund.
limited partnership of private investors
whose money is managed by professional
fund managers who use a wide range of
risky strategies to earn above average
investment returns. They usually require
a high minimum investment or net worth
and they often target wealthy clients.
Mutual fund. They pull assets from
shareholders to invest in stocks. They
are operated by professional money
managers who allocate the funds assets
and attempt to produce gains for the
funds investors. Mutual funds give small
or individual investors access to
professionally managed portfolios. Each
shareholder therefore participates
proportionally in the gains or losses of
the fund. Control stock refers to shares
owned by major shareholders of a
company. These shareholders will have
either a majority of the shares
outstanding or a portion of the shares
that is significant enough to allow them
to exert a controlling influence on the
decisions made by the company. Holding
company. Businesses that don't produce
or sell anything, but they hold the
controlling stock in other companies.
The companies owned by a holding company
are called subsidiaries. While it may
oversee the company's management
decisions, it does not actively
participate in running the day-to-day
operations of its subsidiaries. Index
fund type of mutual fund or ETF with a
portfolio constructed to match or track
the components of an index such as the
S&P 500. Day trading. It's a fast-paced
trading strategy where individuals buy
and sell stocks within the same trading
day. The primary goal of day traders is
to profit from short-term price
movements. Swing trading. Swing trading
is a mediumpaced trading strategy with
trades that last from a couple of days
to several months. The goal is to profit
from an anticipated price move.
Intrinsic value. Measure of what an
asset is worth. It's usually different
from the current market price of that
asset. Book value. It's the value of a
business according to its books. It
theoretically represents what investors
would get if they sold all of the
company's assets and paid all its debts.
While intrinsic value takes into account
estimates for the future, book value
only measures the present. Price-to-book
ratio. It compares a share's market
price to its book value. Value
investing. It's a trading strategy that
involves picking stocks that appear to
be trading for less than their intrinsic
or book value. Value investors usually
believe that the market overreacts to
good and bad news and buy stocks that
they think the market is
underestimating. Growth investing.
Growth investors typically invest in
young and small companies whose earnings
are expected to increase at an above
average rate compared to the market.
This can provide better returns, but it
also often comes with more risk.
Earnings per share. It indicates how
much money a company makes for each
share of its stock by dividing its net
profit by the number of common shares it
has outstanding. Technical analysis.
It's a trading strategy employed to
identify trading opportunities by
analyzing statistical trends.
Fundamental analysis. Fundamental
analysts identify trading opportunities
by analyzing the actual factors of the
company such as its competitors, its
management effectiveness, the state of
its industry, etc. Efficient market
hypothesis. It's the hypothesis that
share prices reflect all available
information making it impossible to beat
the market consistently. Supply and
demand. Supply refers to the quantity of
a good or service available while demand
is the quantity that people want. If
demand is high and supply is low, prices
tend to rise. If supply is high and
demand is low, prices tend to fall.
Insider trading. It's the activity of
trading in a public company's stock by
using information that is not available
to the public. This information is
usually gathered from employees of that
company, managers, etc. This is illegal
most of the time. Ticker symbol. It's
just an abbreviation used to uniquely
identify publicly traded companies.
Compound interest. It means earning
interest not just on your original
investment but also on the interest you
earned over time. This creates an
exponential curve of earnings over long
periods of time. Profit margin. It's the
percentage of profit a company makes
from its revenue after subtracting all
of its costs. Dollar cost averaging.
It's a strategy that consists of
investing a fixed amount of money at
regular intervals regardless of the
asset's price. This helps reduce the
impact of market volatility. Return on investment.
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