When preparing for an interview, a prospective employee will usually do some research on a company and its products. If the prospective employee has never worked in the particular field, he or she might try to learn some of the “buzzwords” related to the business. Knowing some of the terminology can help even the beginning trader successfully discuss investment philosophies as well. Below are some of the stock market terms that will help you when speaking with someone else in the business:
Basic terms
These stock market terms reflect common ideas and descriptions that are used every day. Such stock market terms portray types of people and general stock market basics.
- Ask – This is the lowest price that a seller will accept when selling a stock.
- Bear – This refers to an investor who believes the stock market or a particular stock is declining. This is the opposite of a Bull.
- Bid – This is the highest price that a buyer is willing to pay for a stock.
- Broker – A person that buys or sells stocks, bonds, commodities and such in exchange for a fee which is called a commission.
- Bull – An investor who believes the whole market or one individual stock is going to increase in price. This is the opposite of a Bear.
- Dow Jones Industrial Average – This is a compilation of the 30 most traded blue chip stocks. This list is the most widely used for analyzing stock market indexes.
- NASDAQ – This is a stock exchange consisting primarily of technology companies.
- Stock – This is the smallest measurable unit of ownership in a company. Shares fall into either the common or preferred categories; companies issue shares of stock in order to raise capital without borrowing money.
Investing terms
These words and phrases reflect stock market terms for various stock market strategies. These stock market terms are used to describe specific conditions or analysis.
- Blue Chip – This term describes a company with a history of strong earning, traditionally increasing dividends and an outstanding balance sheet. Blue Chip stocks include Exxon-Mobile, Coca-Cola and Wal-Mart.
- Book Value – This is the value of a company if assets and common stock equity are added together and all liabilities are subtracted. There is little correlation between the book value and the market value. Book value is used in such fundamental analysis measurements as Price to Book ratio.
- Dividend – This is the portion of a company’s profit that is given back to the investors. Such payments are made on either an annual or quarterly basis.
- Market Capitalization – A company’s market capitalization, also known as its market cap, is calculated by taking the number of outstanding shares of stock multiplied by the current price per share.
- P/E Ratio – This widely used analysis tool of Price to Earnings ratio measures now you pay for each dollar of corporate earnings. For example, if you have $30 stocks that report a profit of $2 per share, your P/E ratio is 15; $30 per share divided by $2 earnings per share equals 15. In this ratio the lower the P/E ratio, the better.
- Spread: This stock market term reflects the difference between the Ask and the Bid.
- Yield – This is the percentage of a dividend paid against the stock price. For example, if you receive a $3 dividend on a $30 per share stock, your yield is 10%.
Conclusion
It is much easier to discuss the stock market if you understand some of the basic stock market terms. There is a large variety of stock market terms and learning them will not only help in your conversations but also to better comprehend the tools available for technical analysis.
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