It really does not matter if you plan on investing in the stock market or not; if you consider yourself a businessperson of any kind, there are some stock market terms that you simply have to be familiar with. Perhaps your company might go public one day or you might want to actually start investing some of your hard-earned money. Whatever the reason, you should familiarize yourself with the following terms, if nothing else, then not to appear as a fool if someone starts talking about the market.
Stock Exchange
A stock exchange (also called a bourse) is a place where stocks, bonds and other securities are traded between stock brokers and traders. In order for a stock to be traded on the exchange, it first needs to be listed. The biggest exchanges in the world include the New York Stock Exchange, NASDAQ, London Stock Exchange Group, Japan Exchange Group in Tokyo and the Shanghai Stock Exchange in China.
Balance Sheet
Balance sheet is the financial statement, a report which indicates the liabilities, as well as the assets of a company. If you intend to invest in a company, you should never do this without consulting their balance sheet because it is the best indicator of the state this company is in.
Dividend
Dividends are fractions of a company’s profits which are paid out to shareholders, i.e. people who own enough stocks of such companies. They are usually paid out every quarter or every year. Keep in mind that only some companies pay out dividends.
Initial Public Offering
Initial Public Offering (usually referred to as IPO) is the first issue of new shares by a company who was up to that point private. This allows outside investors to purchase stocks in a certain company. In the past, there have been some truly momentous IPOs.
Broker
A broker is a person who professionally trades in the stock market. They handle other people’s investments and for their work, they are paid fees, usually in form of commissions. Most people who wish to invest in the stock market hire brokers who handle their investments.
Hedging
Hedging is done by traders who wish to reduce the chances of incurring losses in case a company they invested in loses value. They do this by effectively betting against the stocks they already own.
Portfolio
Portfolio is the collection of investments that a certain investor owns. Your portfolio may consist of just a single stock, or many hundreds, thousands or even millions.
Quote
Quote is the latest information on the price of a stock. People who do not use broker trading platforms (meaning the majority of investors) get their quote with a certain delay (usually between 20 minutes and half an hour).
Volatility
Volatile stocks are those whose value moves dramatically over a relatively short period of time. There are certain stock markets that are much more volatile than others, such as the penny stock market.
Option
An option is a type of a contract here the owner of the option (the buyer) has the right to purchase or sell a certain commodity at a specified price on a specified date. They are not obliged to purchase the asset if they do not wish to, but they have the undeniable right to do so, at conditions that were determined at the time of buying the option.
Binary Options
Binary options are a type of option where the payoff is either in the money or out of the money. With binary options, you take a position on a currency, stock or any other commodity, predicting either that it will close above or below a certain value. If you are successful, you can earn significant amounts of money, but you can also lose it. If you want to learn more about binary options, click here.
Sector
Sector denotes groups of stocks that are in the same industry. For instance, you will find the stocks of companies such as Honda, Ford and Mercedes-Benz in the Automotive sector.