10 Basic Stock Market Concepts You Need to Know
Before jumping straight to stock trading, there are some stock market basic concepts and terms that every trader or investor needs to know. Here are some common market concepts that you need to understand if you are thinking to be a profitable trader. Here in this article, you will learn the basics of the stock market, definitions of those terminologies to help you to becomes familiar with them.
Stock Market Concepts That a Trader needs to know.
Once you have decided to invest in the stock market, the first thing you encounter is stock market terms. Here are some definitions of the concepts which are widely used in stock markets. If you like this article, you can bookmark it for your future reference.
1. Bull and Bear Market
The bull market is an environment where the stock prices are going straight towards the upside and will keep rising. The bull market is defined when there is growth in the stock prices is 20% or more. Both the bull and bear market is just the opposite of each other. One is always going up, and another one is going down.
A bear market is defined when there is a downswing in the stock prices of 20% or more for a minimum two month period. it is a downward trend in which prices of shares falls down for a period of time. A bear market is the opposite of a bull market.
2. Initial Public Offering (IPO)
When a company offers its first stocks or shares to the public, it is known as an IPO. A company offers IPO when it decides to go public instead of being a solely owned company by some inside investors or private investors. Before issuing an IPO the companies should follow the rules set up by the Securities Exchange Commission (SEC).
3. Leverage
Leverage is just like borrowing money from the broker to invest in the financial markets. So a trader can borrow money from the broker based upon the money your account. For example, the broker provides you with the leverage of 500:1 it means if you have $1000 in your trading account, then you can make a trade of $5,00,000. Leverage is good and bad both at the same time.
4. Margin
Margin is also like leverage which allows a trader to borrow the money or a loan to trade from a broker. The margin is the difference between the price of securities and the amount of loan.
5. Portfolio
A collection of various kinds of investments that are owned by a trader or investor makes his/her portfolio. A diversified portfolio is considered a good portfolio. A trader r investor can buy tons of shares or other securities in their portfolio.
6. Spread
Spread is the difference between the Ask price and the bid price. Or we can say the spread is the difference between the amount for which is someone is willing to sell and someone is willing to buy at that price. For example, if a buyer is willing to buy a Share X at a price of $5 and a trader is willing to trade that share at $6 then the spread is &1.
7. Ticker Symbol
The ticker symbol is a stock symbol that is of one to four characters alphabetic symbol. The ticker symbol shows a publicly-traded company on a stock exchange.
8. Yield
Yield is a measure of the return on the investment which is got from the payment of a dividend.
9. Blue Chip Stocks
Blue-chip stocks are the stocks behind the big leading company of the industry. These blue-chip stocks provide a stable record of notable dividend payments.
10. Broker
A broker works as a mediator between you and the company. The broker buys and sells shares of a company for you and charges some fees from you for that.
Bottom Line
Knowing these stock market terms will help you to understand the stock market better and will assist you to be a better investor. It takes some time to understand the terms, but once you understand these terms they will become a part of your daily vocabulary.
