Trading stocks is a great way to make money from the financial market. Investors can make money and generate a stable income by choosing stocks from companies with good management and a strong reputation. Knowing the stock market basics is essential — otherwise, your investment may fail to turn a profit.
So, if you are a beginner in stock trading, this post is for you. It will introduce you to the essential stock market terms, which is the first step toward profitable stock trading on Olymp Trade.
Interact with the underlined words and green dots to get additional details and explanations.
Explanations and definitions of terms.
Why learn stock trading terms?
To start playing chess, you need to learn the names of all the chess pieces ♟️
The same goes with stock trading. If you want to start trading stocks, the first thing to do is learn stock market terminology. It will help you dive into this field, learn the rules of this world, and understand what it is that market players do and how to name it. There are numerous stock market terms, but we picked out the basic ones for you.
The essential stock market terms
A stock is a unit of ownership in a corporation and the key asset on the stock market. One can invest in stocks and receive dividends if the company flourishes, or trade them, benefiting from price fluctuations.
Traders open a long position when they think the asset’s price will increase. Traders anticipate the future price and open an Up trade that becomes profitable if the price increases.
Traders open a short position when they think the asset’s price will decrease. Traders anticipate the future price and open a Down trade that becomes profitable if the price decreases.
A bull market happens when assets or major indices are rising in value.
A bear market happens when assets or major indices are falling in value.
The price that people are generally looking to sell an asset for.
The price that people are generally willing to pay for an asset.
The difference between an asset’s selling and buying price. Usually, this difference represents a broker’s profit from a trade.
This means the buy or sell order will be executed as soon as possible at the market price.
This is an order that is executed when an asset reaches the price chosen by an investor.
The volatility of an asset within the overall market. The beta for any particular market is always 1.
If the market beta is 1.0 and an asset’s beta is 1.5, then a 1-point movement in the market will result in a 1.5-point movement in the asset price.
Higher beta means higher volatility, while lower beta means lower volatility.
A group of assets used to indicate a sector of the economy.
For example, FTSE 100 is a stock index that includes the 100 biggest companies listed on the London Stock Exchange.
If an asset’s price falls after an investor has purchased it, the investor can purchase more of the asset in order to average out the purchasing price.
The maximum number of shares that a corporation is legally allowed to issue to investors.
This term refers to a company’s shares that are available for trading on the open market.
Volatility represents how quickly or slowly the price of an asset moves, either upward or downward. Higher volatility represents a risky but profitable investment, while lower volatility means a less-risky but less-profitable investment.
Liquidity indicates how quickly an asset can be bought or sold without affecting its market price. High liquidity means high supply and demand for an asset (the trading activity is high); low liquidity means the opposite.
This is the abbreviation for initial price offering. An IPO happens when a new publicly traded company sells its first shares to the public.
Margin accounts enable traders to borrow money from the broker in order to trade assets.
This term represents another share offering to investors by a company, aimed at raising more capital from the public and selling more of its shares.
An exchange is a platform where investors can trade different tradable assets. It works as a medium connecting buyers and sellers in a common place.
A broker is a person or entity who buys and/or sells assets according to investors’ wishes or on their behalf.
Dividends are the portion of company earnings that a company pays to its stockholders.
This term is used to group the market into its smaller parts, such as technology, finance, real estate, healthcare, consumer services, etc.
The collection of investments that an investor owns. It may include investments in several sectors such as stocks, indices, metals, Forex and cryptocurrencies.
Portfolio diversification involves expanding one’s investment across different sectors to increase performance and profit stability.
Also referred to as stock symbols, tickers represent the assets in an exchange platform’s list. They are typically composed of one to three letters that clearly indicate the asset or company.
For example, Apple’s ticker is AAPL, Microsoft’s is MSFT and Bitcoin’s is BTC.
Earnings per share (EPS)
The EPS of an asset can be found by dividing a company’s profit by its outstanding shares. It represents shareholders’ return on investment.
Price-to-earnings ratio (P/E Ratio)
P/E ratio can be found by dividing a company’s current stock price by its earnings. It gives an indication as to whether a company’s stock is overvalued or undervalued on the market.
Return On Equity (ROE)
ROE can be found by dividing a company’s net profit by the total funds that have been invested in it. This indicator shows how efficiently a company’s management is generating profit.
Debt-to-equity ratio (D/E)
D/E can be found by dividing a company’s total debt by the total funds that have been invested in it. This indicator relates to the value of a company’s stock.
Stock trading is not only for professionals and wealthy people. Learning these essential terms will give you the leg-up you need to navigate the world of trading.
Meanwhile, we suggest additional research to learn about how to do a technical analysis and fundamental analysis, so that you can more accurately choose the best assets and make smarter investment decisions.Go Trade Stocks
Risk warning: The contents of this article do not constitute investment advice, and you bear sole responsibility for your trading activity and/or trading results.
In trading, assets are resources that can be exchanged on the markets: stocks, commodities, currencies, etc.
The total number of shares that have been issued by a company, whether to investors or its own personnel.