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.
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