Glossary of Stock Market Definitions
A
After-Hours Trading
Selling and buying shares on one the major stock exchanges outside of the normal working hours. Normally done only by corporate investors using computer networks, but more recently, investors of all sizes have had the opportunity to carry out After Hours Trading using Internet Share Trading services.
Appreciation
The opposite of depreciation, Appreciation is when an asset increases in value. For example, in Forex trading, Appreciation specifically pertains to an the increase in the value of a particular currency relative to another currency.
Arbitrage
A trading technique making use of the fact that the same security can be traded for different prices on different exchanges. Typically, a trader using Arbitrage would buy at a lower price and sell the security on another market where the price is higher.
Ask Price
If you wish to buy a particular commodity or stock, the Ask Price is the price at which another investor or institution will sell it to you.
B
Basis Point
One hundredth (1/100) of one percent. For example 10% – 9.5% = 50 basis points.
Bear Market
This term is used to describe a market that is generally doing badly; declining in overall value.
Bid Price
If you wish to sell a particular commodity or stock, the Bid Price is the price that another investor will purchase it for.
Bond
An interest bearing or discounted debt-based security. The bond issuer (usually a corporation or the government) is obliged to pay interest over the term of the bond and/or to reimburse the investment at a later date.
Broker
A broker engages in selling and buying shares on behalf of other, in exchange for a percentage commission.
Bull Market
A market that is increasing in value overall.
C
Call Option
A Call Option contract gives its owner the right to buy the underlying stock at a particular price within a certain period.
Clearing
Commission
A payment to an employee for services or products sold. In the stock market this usually refers to the fee that a broker levies for a trade.
Commodity
Tangible goods suck as metals, foodstuffs, minerals, chemicals, oil, etc.
Currency Pair
In Foreign Exchange trading, currencies are bought and sought in pairs, for example: USD/EUR.
D
Day Trading
The practice of buying and selling securities for a certain stock within a single day. The positions are always closed by the end of the day’s trading.
Debt
An amount of goods, money or services that one party owes to another.
Dividend
A “bonus” cash payment made by a company on a per-share basis, usually proportional to the amount of profit made by the company.
E
Equity
In the stock market, Equity refers to the ownership stake a party has in a company, in terms of stock.
F
Forex
The Foreign Exchange currency trading market. An international market where currency pairs are bought and sold. This is the biggest market in trading.
Fund
Also known as Mutual Fund. Money invested in a fund is combined with that of other investors and invested in a range of markets (depending on the fund). The investment is professionally managed by a Fund Manager – usually an individual, but occasionally a team.
Future
A contract that requires the holder to buy or sell a stock, commodity or currency, at a fixed price, on or before the contract’s expiry date.
G
GDP
Gross Domestic Product – a measure of the strength of a country’s economy. Essentially, the total value of goods produced by the country.
Gearing
The technique of borrowing funds to invest, or with which to increase a particular investment. May lead to bigger profit, or bigger loss, than an “unleveraged” investment.
H
Hedging
An investment strategy designed to lessen risk, by taking up an opposite position with the same value as the first position, in another market.
I
Inflation
An overall rise in the price of goods.
Internet Share Trading
Selling and buying shares via the internet, or using internet connected financial trading software. Many traders find that this gives them greater control over their investment as well as saving money.
IPO
Initial Public Offering – a company’s first sale of shares to the general public, also known as “floating”.
J
January Effect
The belief that smaller stocks increase in value in the month of January.
K
Knock-in option
A type of option contract that becomes valid only when the associated stock has gone above an agreed price.
Knock-out option
A type of option contract that becomes invalid (i.e.: expires) if the associated stock goes above an agreed price.
L
Leverage
See Gearing
Liquidity
A measure of how easily an item or commodity can be turned into cash. For example, currencies are very liquid, whereas Penny Shares aren’t.
LSE
London Stock Exchange – One of the world’s main financial markets, located in London, Great Britain.
M
Maturity
The final payment date for a financial instrument, such as a loan or a bond.
Market Cap
Market Capitalization is a measure of the size/value of a company. Market Cap = Number of outstanding shares x Price of one share.
N
NASDAQ
National Association of Securities Dealers Automated Quotations. One of the world’s leading Stock Exchanges, and the only one to exclusively trade stocks electronically.
Noise
Refers to the minor fluctuating movements of a market.
NYSE
New York Stock Exchange. The biggest exchange in the world, in terms of the amount traded. Located in New York, USA.
O
Online Share Dealing
Option
A contract that gives the holder the right to either buy or sell a certain stock at a fixed price and within a specified time
Over the Counter
Refers to stocks that are traded through a dealer network as opposed to through a recognized exchange, normally because of the small size of the companies. See Penny Stock.
P
Penny Stock
Stocks in low market cap companies, Penny Stocks usually trade for less than $1 per share.
Profit
The amount of money “made” in an investment. Profit = Revenue(total earned from the investment) – Cost(charges and fees associated with the investment). A negative profit is a Loss – i.e.: the cost was bigger than the revenue.
Put Option
A Put Option contract gives its owner the right to sell the underlying stock at a agreed price within an agreed period.
Price Earnings Ratio
Q
Quotation
News about the last trade of a stock, including the Bid Price and Ask Price.
R
Return
A.k.a. “Return on Investment” (ROI) – a measure used to compare the attractiveness of different investment. ROI = (Profit from investment – Cost of investment) x 100.
Risk
A qualitative term denoting the uncertainty of a particular investment. For example, a government bond is low-risk investment; whereas penny shares are a high risk investment. High risk investments are typically known for either very high profits or very high losses. Low risk investment don’t promise the same ROI, but offer a much better chance of any return at all.
S
Security
A general term that can refer to any financial instrument – bonds, stocks, options, futures, commodities, etc.
Stock
An asset representing ownership of a company. Usually, each stock represents a very small percentage of the company. Also known as a ‘Share’.
Stockbroker
See Broker.
Stock Brokerage
An organization that employs stockbrokers. Online Stock Brokerage firms are also common, though which investors can trade using online tools and data.
Stock Exchange
A market within which professional traders and brokers engage in selling and buying shares, or other types of financial securities.
T
Turnover Ratio
A measure of how quickly a mutual fund cycles the assets (shares, commodities, options, etc) held in its portfolio. For example: a 50% Turnover Ratio means that the fund cycles half its stocks in a year, or all of them in two years. Funds with lower Turnover Ratios are likely to have lower fees.
U
Undervalued
If a stock is thought to be Undervalued by analysts, this means that it’s price should be higher. An Undervalued” assessment is often a good indicator that it would be wise to invest in the stock.
Uptrend
When a stock price is increasing, of is forecast to be increasing in the near future.
V
Value Investor
An investor who tends to buy Undervalued Stocks.
Volatility
An indicator of the likelihood that the price of a particular stock will fluctuate.
W
Watch Portfolio
Refers to a set of stocks that an investor is keeping track of, with a view to possibly buying in the future. In other words, watching shares that you don’t currently own.
X
Xetra
An computerized trading system that originated in the German stock exchange but has been adopted by other stock exchanges since.
Y
Yield
A measure used to compare the attractiveness of investment, Yield is the annual dividend as a percentage of the stock’s price. For instance: a stock priced at $10 per share, with an annual dividend of $0.5, the Yield is ((0.5/10)x100), which works out as 5%.
Z
Zero-investment Portfolio
A portfolio with a zero overall value. This can arise when an investor concurrently buys and sells the securities. This can be less risky than only either buying or selling the same securities.
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