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Stocks 101 : A Guide to Stock Market Jargon

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Last Update: 12 Aug 2024

Why This Guide?​

As I embark on my journey into the stock market, I’ve realized that understanding the jargon is crucial. So, I’ve decided to compile all the essential terms here. This guide will serve as my go-to resource, reminding me of the basics and helping me grasp more advanced concepts.

Key Terms Demystified​

  1. Stock (Equity):

    • A share in ownership of a company.
    • Owning stock means you're a partial owner and entitled to a portion of the company's profits.
    • Stocks are traded on stock exchanges like the New York Stock Exchange (NYSE) or NASDAQ.

  2. Ticker Symbol:

    • A unique abbreviation representing a publicly traded company.
    • For example, "AAPL" stands for Apple Inc.

  3. Market Capitalization (Market Cap):

    • The total value of a company's outstanding shares.
    • Calculated by multiplying the stock price by the number of shares.

  4. Dividend:

    • A portion of a company's profits distributed to shareholders.
    • Usually paid quarterly.

  5. Bull Market:

    • A period of rising stock prices.
    • Investors are optimistic about the economy.

  6. Bear Market:

    • A period of falling stock prices.
    • Investors are pessimistic.

  7. Volatility:

    • Price fluctuations in the stock market.
    • High volatility means rapid price changes.

  8. Blue-Chip Stocks:

    • Shares of well-established, financially stable companies.
    • Often pay dividends.

  9. P/E Ratio (Price-to-Earnings Ratio):

    • Compares a stock's price to its earnings per share (EPS).
    • Helps evaluate whether a stock is overvalued or undervalued.

  10. Market Order:

    • An order to buy or sell a stock at the current market price.
    • Executes immediately.

  11. Limit Order:

    • An order to buy or sell a stock at a specific price.
    • Executes only when the stock reaches that price.

  12. Short Selling:

    • Betting that a stock's price will fall.
    • Borrowing shares and selling them, with the intention of buying them back later at a lower price.

  13. IPO (Initial Public Offering):

    • When a private company goes public by offering shares to the public for the first time.

  14. Diversification:

    • Spreading investments across different assets (stocks, bonds, real estate) to reduce risk.

  15. Stock Split:

    • Dividing existing shares into multiple shares.
    • Doesn't change the overall value of your investment.

  16. Pullback:

  • A temporary decline in stock prices within an ongoing uptrend.
  • Often considered a healthy correction before the market resumes its upward movement.
  1. Correction:
  • A more significant decline in stock prices (usually around 10% or more) from recent highs.
  • Corrections can occur due to various factors and are part of normal market cycles.
  1. Market Crash:
  • A sudden and severe decline in stock prices across the entire market.
  • Crashes are often associated with panic selling, economic crises, or major events.

Certainly! Here are additional stock market terms, along with their opposites:

  1. Going Long:
  • Refers to buying a security (such as stocks) with the expectation that its price will rise.
  • Investors go long when they believe the market or a specific asset will perform well.
  1. Going Short:
  • Involves selling a security (often borrowed) with the expectation that its price will decline.
  • Short sellers profit from falling prices.
  1. Liquidity:
  • The ease with which an asset can be bought or sold without significantly affecting its price.
  • High liquidity means there are many buyers and sellers, while low liquidity can lead to wider bid-ask spreads.
  1. Resistance:
  • A price level at which a stock or index tends to stop rising and reverses its trend.
  • Resistance levels often correspond to previous highs.
  1. Support:
  • A price level at which a stock or index tends to stop falling and bounces back.
  • Support levels often correspond to previous lows.
Disclaimer

Note: This guide provides a concise overview. For more in-depth information, consult financial resources or seek advice from a professional financial advisor. Remember, learning about stocks is an ongoing process. Feel free to bookmark this guide and refer back to it whenever you encounter unfamiliar terms. Happy investing! 🚀