Stock Market Basics – Terms and Phrases
When you’re learning the stock market basics, you’ll hear terms and/or phrases being used that you might not be aware of or have no idea what the person is talking about. In this post we’ll go over some of the ones that you will hear almost everyday.
Points- There are several different ways that this word is used throughout the markets. A point is referred to as a way to measure. In regards to a stock gaining a point, it means that the value went up one dollar. When the news says that the federal reserve lowered the interest rate by 50 basis points, that would mean that the interest rate dropped by a half of a percent (0.5%).
Long/Short- You will hear traders say that they are either long or short a stock in their portfolio. What they mean by “long” is that they are invested in the stock for the purpose of it going up in value. When they refer to being “short” a stock. They are investing in the stock expecting it to go down in value. Yes, You can make money in stocks as the price per share drops (that’s something that you will learn later).
Bonds- A bond is actually a loan with a little more complicated terminology added to help keep the average investor from getting involved without the help of a professional. When the government or a company wants to raise capital (cash) for one reason or another, they issue bonds to individuals or other entities. The interest is paid to the lender on a yearly basis (annuities). The actual principal (money borrowed) is not paid back until the end of the terms stated in the bond.
Dividends Dividends are what a company pays to their shareholders in the form of cash or more shares of the company. Companies that have grown to their maximum and have no plans to acquire other companies pay dividends. The dividends are calculated on a percentage of what each stock is worth. The payment is broken down into four payments (each quarter). There is some other factors involved with dividends that I won’t get into in this post.
Diversified Portfolio- A portfolio that only contains stock from one sector will not do as good as one that contains stocks from several sectors. Stocks rise and fall all the time, but that doesn’t mean that they all go in the same direction or by the same amount together. If you balance your portfolio correctly, you will do quite well on a regular basis.
In later posts I’ll add some other term and phrases that will help you understand the stock market better.
Tags: annuities, basis points, bonds, diversified portfolio, dividend, dividends, federal reserve, interest rate, investor, money, shareholders, stock market, Stock Market Basics, Stock Market Basics, stocksRelated posts
Stock Market Basics – Four Tips
If you’re trying to understand stock market basics, I’d like to start you off with just four tips that will help you become a better trader.
1. EMOTIONS- If you involve your emotions into trading stocks, it will impair your judgment as well as cause you to over-react in your trades. You do not buy a stock because it has a sentimental meaning to you. If a stock that you like is going up in value, don’t worry about not getting in on the gains and jump into it after it’s gone up 5% or better (it will come back to you in time). If you see that the stock you bought is losing value, don’t instantly panic and dump you shares (it may be temporary).
2. RESEARCH- Like I said before, don’t just buy a stock for a emotional attachment to it. The only reason you get into a company’s stock is that you did the research and the company has strong fundamentals. You need to look into the company very closely before making a decision on if it’s a good investment.
3. ADVICE (TIPS)- Don’t just take the advice of someone who says he/she has a great stock tip. There is no such thing as a great tip. If the person tells you that they received a HOT tip on a particular stock and say that you need to get in on it. Don’t do it until you do your research on the company to confirm what the person said is true. If you think he has information that you are not privileged to, don’t think that since if he did have inside information and shared it, it would be legal and both of you would be in a heap of trouble.
4. BUY INCREMENTALLY-Never buy into company all at once. When you do buy all at once and the stock loses value by 3%-8% you won’t have any capital to buy any more and reduce your cost basis.
I know that these tips will help you as you trade stocks. They have helped me many times over the years.
Tags: cost basis, stock market, Stock Market Basics, Stock Market Basics, stock tip, trading stocks