Glossary of Stock Market Terms

The world of stock market can be exciting and challenging at the same time. There’s a lot that one needs to learn before starting their investing journey here. Continuing to learn about the stock market is beneficial for making informed investment decisions and maximising potential returns. So, following on from previous insights about the stock market, we want to introduce you to some basic terms you must know before stepping into the trading business.

1. Exchange

Stock exchanges help individual investors put money to work in the stock market. Consider a market where the farmers pay the market to have some space to sell their goods. The buyers come to the market because they know they will be able to buy from many farmers selling a lot of different farm goods. Here, both the farmers and buyers benefit from the market. The market by itself doesn’t actually participate in the buying and selling of farm goods, but its role is to simply provide the space so that the farmers and buyers have a place to meet and trade. Likewise, stock exchanges bring together the companies and current shareholders who want to sell stock and the investors who want to buy stock from them. A few examples of stock exchanges are New York Stock Exchange (NYSE), US-$24.3T, NASDAQ, US-$20.13T, Shanghai Stock Exchange (SSE) and China-6.93T.

2. Broker

Stocks are traded through exchanges. However, an investor cannot directly trade in stock exchanges. To buy a stock or sell a stock through exchanges, you need an intermediary who will help you with the transaction. This middleman can be a person or a company who is authorised to buy and sell stocks and other securities on your behalf, in exchange for a small commission. Such a person or a company is known as a stockbroker.

3. Equity

Equity is the amount of money that a company’s owner has put into it or owns. On a company’s balance sheet, the difference between its liabilities and assets shows how much equity the company has. Shares or equity of companies are bought and sold by investors on the stock market. As an investor, when you buy the shares of a company, you buy an equivalent degree of ownership in that company.

4. Ask/Offer

The term “ask” refers to the lowest price at which a seller will sell the stock. The bid price will almost always be lower than the ask or “offer” price. The difference between the bid price and the ask price is called the “spread”, which is primarily determined by the demand and supply of a specific asset, including stocks.

5. Yield

Stock yield measures the growth of an investment. It is the income returned on an investment, such as the interest received from holding a security. The yield is usually expressed as an annual percentage rate based on the investment’s cost, current market value or face value.

6. Volatility

Volatility is the rate at which the price of a stock increases or decreases over a particular period. Higher stock price volatility often means higher risk and helps an investor to estimate the fluctuations that may happen in the future. Some traders profit off the risks involved in highly volatile stocks, while others prefer investing in less volatile stocks for the long run.

7. Bull Market / Bear Market

The names “Bull” and “Bear” are used to denote the trends in the stock market with reference to the ways in which a bear and bull handle their prey. Bears swipe their paws downward while bulls shove their horns upward. When stock prices are rising and the market is moving upward, this is referred to as a bull market. When stock values are dropping and the market is moving in a downward direction, this is referred to as a bear market. Both bear and bull markets have a huge influence on the investments one makes. So it’s always a good idea to take some time to determine the market trends before making an investment.

Investing in the stock market can be very rewarding, especially if you avoid some of the pitfalls that most new investors experience when starting out. Beginners should find an investing plan that works for them and stick to it through the good times and bad. The more patient you are with your investments, the better returns you get!

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