Navigating the stock market can be difficult, especially when it feels like everyone is speaking a different language. To benefit from the stock market, you have to understand the stock market terminology used by investors and traders.
This guide covers the terminologies you need to understand or you will frequently hear as investors and traders discuss the stock market. It is important to know the key terms so you can understand the decisions and strategies being discussed. Here are some of the most commonly used stock market terms, explained simply.
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Most Commonly Used Stock Market Terms
Stock
A security that represents partial ownership of a public company. Stocks are also commonly called shares or equities.
Stock Symbol
A stock symbol, sometimes referred to as a ticker symbol or stock ticker, is an organisation of letters or characters (or a combination of both) that identifies a company listed on a stock exchange.
Stock Exchange
A physical or electronic marketplace where shares of publicly traded companies are bought and sold in real time.
Stockbroker
An individual or firm authorised to buy and sell stocks and other securities for retail and institutional clients, over the counter or through a stock exchange, in return for a commission or fee.
Trading Volume
The total number of shares that are bought and sold over a specific period of time—usually one trading day.
Trading Session
The time during which a stock exchange is open for trading. In the UK, the London Stock Exchange’s regular trading session begins at 08:00 GMT and closes at 16:30 GMT.
Price-to-Earnings (P/E) Ratio
This is the ratio of a company’s share price to its earnings per share. It is often used to compare the valuations of different stocks.
Earnings Per Share (EPS)
A metric used to determine the value attached to each outstanding share of a company. EPS is calculated by dividing the total amount of profit a company has generated in a particular period, by its number of outstanding shares.
Initial Public Offering (IPO)
This is when a company goes public on a stock exchange and lists its first sale of stock. An IPO, also known as ‘listing’ or ‘floating’, allows a company to raise big sums of money from new investors.
Secondary Offering
A secondary offering is any public sale of stock that occurs after a company’s initial public offering.
Ask/Offer Price
The price that a seller is willing to sell a stock.
Bid Price
The price that a buyer is willing to buy a stock.
Spread
The difference between the highest bid price and the lowest ask price.
Market Order
A request to buy or sell a stock as soon as possible at the best available price.
Limit Order
A request to buy or sell a stock only at a better or specific price.
Dividend
A portion of a company’s income that it voluntarily returns to shareholders, generally on an annual, monthly, or quarterly basis. Dividends are usually paid on a per-share basis. Not all companies pay dividends.
Dividend Yield
A dividend yield is a ratio that shows how much dividend income a shareholder will receive from a company, compared to the current price of the stock. This ratio is expressed as a percentage.
Common Stock
A type of stock that offers owners proportional equity in a company and voting rights at shareholder meetings.
Preferred Stock
A type of stock that offers owners proportional equity in a company without voting rights.
Market Index
A measurement of the price performance of a group of stocks from an exchange.
Market Sector
A collection of stocks that have a lot in common with each other, usually because they are in the same line of business.
Outstanding Shares
The total number of shares of common stock a company has issued to investors, including restricted shares held by its insiders and executives.
Public Float
The number of outstanding shares of a company that is in the hands of public investors, as opposed to company insiders and executives that hold controlling interests.
Market Capitalisation
The total value of a company’s shares currently held by shareholders. It is calculated by multiplying a company’s current share price by the total number of its outstanding shares.
Going Long
Going long, or taking a long position, is when an investor buys a stock and holds it for an extended period because they believe it will appreciate.
Going Short
Going short, or shorting, is taking a position that makes a profit if a stock’s market price drops.
Trend
The general direction that stocks are heading, based on where they have been in the past.
Bull Market
A stock market situation in which a major index rises at least 20% from its recent low.
Bear Market
A stock market situation in which a major index drops 20% or more from its recent high.
Market Correction
A drop of at least 10% (but less than 20%) in the value of a major index from its recent high.
Volatility
The rate at which the price of a stock rises or falls over a particular period of time.
Liquidity
Liquidity refers to the ease with which shares of a stock can be bought or sold without negatively impacting the stock price.
Support Level
The point on a price chart at which a stock repeatedly stops falling and bounces back up.
Resistance Level
The point on a price chart at which a stock stops rising any further.
Blue-Chip Stocks
These are shares of large, well-established companies with long-term track records of success and promising futures. Products or services made by a blue-chip company are usually well-known and have a loyal consumer base.
Share Buyback
A share buyback, also referred to as stock buyback or share repurchase, is when a public company uses its excess cash to buy shares of its own stock on the public market.
Stock Split
A market event in which a company decides to divide its existing shares into multiple shares according to a certain ratio. A stock split makes it easier for individual investors looking to do small trades and doesn’t affect the fundamentals of a company.
Day Trading
A type of investment style that involves buying and selling financial instruments within a single trading day with the goal of making small profits that will hopefully add up to big gains over time.
Margin
The deposit required to open and maintain a leveraged position using products such as spread bets and CFDs.
Stock Portfolio
This is simply the bundle of stocks that an investor owns. Having a stock portfolio is one of the best ways to achieve diversification.
Exchange-Traded Fund (ETF)
A type of security that tracks the performance of an underlying asset or group of assets.
Contract For Difference (CFD)
Any financial contract that is settled in cash form rather than through the delivery of the underlying assets that the contract covers.
Pump and Dump
A manipulative scheme in which scammers artificially boost the price of a stock by making misleading and false claims about a company’s business prospects. Then, the scammers sell their shares before the public becomes aware of the fraud, at which point the stock price usually sinks and unsuspecting investors lose their money.
Diversification
A risk management strategy that attempts to minimise losses by mixing a wide variety of financial instruments within a portfolio.
Arbitrage
An investing strategy in which a trader aims to profit from varying prices for the same financial instrument in different markets.
Leverage
An investment strategy in which an investor makes an investment or trades with borrowed capital as their main capital outlay.
Whale
Any trader or investor who has substantial money and power to directly influence the price of a stock.
Penny Stock
Penny stocks are company stocks priced at a low value, typically under $5 per share. Penny stock trading platform in the UK offers access to these low-priced stocks and provides the necessary tools and resources for traders.
FAQs
The most used stock market terms include bull market, bear market, blue-chip stocks, earnings per share, dividend, bid, ask, and spread.
Beginners should first have basic knowledge of how the stock market works. When starting, you need to gain knowledge of stock market-related topics like technical analysis, fundamental analysis, hedging, shorting, etc.
There are two main types of stocks: common stock and preferred stock. Common stock owners receive dividends and are entitled to vote at shareholder meetings. Preferred stock owners don’t have voting rights but they receive dividends before owners of common stock do.
There are numerous terms associated with the stock market. Some of the commonly used terms include bull market, bear market, blue-chip stocks, earnings per share, dividend, bid, ask, and spread.
Conclusion
If you are going to invest in the stock market, it is important to establish a good knowledge of shares and the above-mentioned basic stock market terms. Understanding these terms can form the foundation for the rest of your investment journey and help provide insight into how the market works.
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