One of the things that intimidate people when trying to get into the stock market is the amount of seemingly foreign terms used. Learning about what each means can help the trader immensely and help to understand what is going on with the market. If this is known, the right trading and investment decisions can be made to increase the profit potential. The following are some of the more common terms you'll find when dealing with the share markets.
Stocks (or Shares) - These are what is traded most often in the various stock markets. By buying a share in a company, you are technically a part owner, albeit a probably very small part. These shares (or stocks, as these two terms are synonymous) are traded publicly. By having shares in a company, you are entitled to share in the profits the company makes. You also have the right to vote on certain company decisions made in stockholder meetings.
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Broker - This is the person who actually negotiates the buying and selling of shares you are interested in. He or she is the "middleman" so to speak. Full-service brokers offer the investor heaps of advice and guidance, as well as providing any information about a certain company an investor is interested in investing in to shape his/her investment decisions. A beginning share trader should go through one of these. Discount brokers proved little, if any, information or advice. They are there to only buy or sell shares. If you are knowledgeable and don't require any information to make your decisions, this type of broker is for you!
Bull Market - This is one term you'll always hear in the news. It is stock market slang for a market that is rising in value (usually over many weeks or months). In a bull market, investors become optimistic and generally buy shares rather than selling shares.
Bear Market - This is the opposite to a bull market, where the market is gradually declining in value over a period of weeks or months. This means that investors tend to be fairly pessimistic and will sell more shares rather than buy more.
Dividends - When a company makes a profit, they are obligated to give some of the profits to share holders. The profits are divided up into a certain amount per share. Therefore, if you own shares in a company, this is money that you get regardless of what the current market is doing. Many companies have a DRIP system, which stands for Dividend Reinvestment Program, where instead of sending you a cheque for the dividends, they take all your dividends and buy more shares for you. If you have invested in a profitable company, this can be the best long-term decision for you!
Day Trader - This is a person who has a very aggressive style of trading. They tend to buy and sell shares many times throughout the day, looking for many small profits. These profits do add up over the course of the day, but this kind of trading can be very risky. This is only for the very experienced trader!
Trading on Margin - When you trade on margin, you are not paying the full amount for the shares, rather, you are only putting on a down payment. The rest of the money to buy the shares can come from the brokerage firm (or a bank) you are dealing with. The remainder of the cost is paid when you actually sell the shares at a later date. For example, a trader can buy 1000 shares at each, so he owes 000. He puts a deposit of 00 and the brokerage company loans him the extra 00 to buy the hundred shares. The share price goes up to .50 each and he sells all of them for 500. He gives back the 00 he owes the brokerage and keeps the 00, making a 0 profit on his original 00, or 50%. Pretty good eh? However, if he made the wrong decision and the share price fell to .50, he would have lost 0, or a 50% loss on his original 00. Therefore, trading on margin can be very profitable as it allows you to have a great exposure to the market and therefore a greater profit potential. However, it also has the potential for greater losses. If you are interested in this, do your homework first and pay close attention to what your broker advises you!
These are only a few of the more common terms you'll find when investing in the stock market. By taking some time to learn about these terms, you will be able to better understand what is happening in the markets, but you will also be able to make better informed decisions.
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