MARGIN CALL: If your account falls below minimum maintenance, your broker will issue a margin call for you to either deposit more more or sell securities to correct the situation.
MARKET CAPITALIZATION: Market capitalization or market cap is a way of measuring the size of a company and is calculated by multiplying the current stock price by the number of outstanding shares.
MARKET ORDER: A market order to buy or sell placed with your broker requests the best price at that moment. Brokers fill market orders first before other pending orders.
MARKET TIMING: Market timing is the attempt to know when market lows and highs are going to occur. It is the short-term pursuit of buy low and sell high and almost always fails over the long run.
OPTIONS: Options give the owner the right, but not the obligation, to purchase or sell a specific number of shares of a stock at a specific price. Options are bought and sold on the open market.
ONLINE BROKERS: Online brokers allow investors to buy and sell securities over the Internet without ever talking to a human. Online brokers often offer the least expensive commissions.
PENNY STOCKS: Penny stocks are a special category of low priced, usually $1 or less, stocks often issued by highly speculative companies. They are frequently the focus of stock scams and manipulations.
POSITION: Position describes your current holdings. If you owned 100 shares of IBM, your position would be “long 100 IBM.”
PREFERRED STOCKS: As the name implies, preferred stock is a different class of stock with additional rights not granted to common stock owners. Among these rights is first call on dividends. Investors buy preferred stock for its dividend income.
PRICE EARNINGS RATIO: The price/earnings ratio (P/E) is a way to show how a company’s earnings relate to the stock price. The P/E is calculated by dividing the current price of the stock by the annual earnings per share. The higher the P/E the more earnings growth investors are expecting and the higher premium they are willing to pay for that anticipated growth.
PROSPECTUS: A prospectus is a legal document that potential shareholders of an initial public offering of a stock must have before they can invest. It lists complete financial details of the company as well as the associated risks of the investment. A prospectus is also required for mutual funds and any regulated security.
RISK TOLERANCE: Risk tolerance is how much risk you are willing to take to achieve an investment goal. The higher your risk tolerance, the more risk you are willing to take.
ROUND LOT: A round lot is the standard transaction unit in stocks and is 100 shares. Any order not divisible by 100 is considered an odd lot and may trigger an additional fee from your broker.
SHORT SELLING: Short selling is where you sell a stock you do not own in anticipation that the price is going to fall. Your broker will “borrow” the stock from another client. You sell the stock and put the money in your account. If you are correct, you buy back the stock at the lower price and pocket the profit. The original owner then gets the stock back. This all perfectly legal.
SMALL CAP STOCK: A small cap stock is any company with a market capitalization of $1 billion or less.
TECHNICAL ANALYSIS: Technical analysis is a form of stock evaluation that relies on stock data, such as price movement, volume, open interest to predict future price trends. Technical analysis is not concerned with the business, but focuses strictly on the data, using charts and graphics to spot trends and certain buy and sell points.
VALUE STOCK: A value stock is one that is under priced by the market for reasons that have nothing to do with the business itself.
WARRANT: Warrants give the holder the right, but not the obligation, to purchase a specific number of shares of a stock at a specified price. Warrants are often issued along with new stock as an incentive to investors.
Stock Market Education: Definition of Terms
FISCAL YEAR: A fiscal year is the accounting year for a company. It may or may not correspond with a calendar year. Most companies operate on a calendar/fiscal year, but not all.
FUNDAMENTAL ANALYSIS: Fundamental analysis is a method for evaluating a stock on the basis of observing key ratios and understanding the underlying business.
GROWTH INVESTMENT STRATEGY: A growth investment strategy identifies companies with significant growth potential and is willing to ride out frequent price fluctuations that are common to growth stocks.
GROWTH STOCK: A growth stock is defined as a stock that usually pays no dividends, but puts profits back into the company to finance new growth. Investors buy growth stock for its potential price appreciation as the company grows.
INCOME INVESTMENT STRATEGY: An income investmnet strategy identifies sources of immediate income whether through income stocks or bonds.
INCOME STATEMENT: An income statement is a financial document listing income and expenses of a company that reveals how much was made or lost. It is part of the annual report and where you will find the proverbial "bottomline."
INFLATION: Inflation is too much money chasing too few goods. The result is a sharp rise in prices without any extra value added making money worth less. Inflation leads to rising interest rates and a cooling of the economy. If the economy slows down too quickly and too far, it may slip into a recession or even a depression.
INITIAL PUBLIC OFFERING: The first time a company issues stock for sale to the public is known as the initial public offering or IPO. The company is said to be “going public” when this happens. The offering is highly regulated and often surrounded by a lot of media attention.
LONG and SHORT: Somewhat the equivalent of “buy and sell,” however with an investing twists. If enter an order to “go long 100 shares of IBM,” it means you want to buy IBM. Likewise, to “short IBM” is to sell the stock. Long also describes your position in a stock. For example, your brokerage statement might show you were “long 100 IBM,” which means you own 100 shares of IBM. Your account could also show you were “short 100 IBM,” which means you sold 100 shares of IBM short.
FUNDAMENTAL ANALYSIS: Fundamental analysis is a method for evaluating a stock on the basis of observing key ratios and understanding the underlying business.
GROWTH INVESTMENT STRATEGY: A growth investment strategy identifies companies with significant growth potential and is willing to ride out frequent price fluctuations that are common to growth stocks.
GROWTH STOCK: A growth stock is defined as a stock that usually pays no dividends, but puts profits back into the company to finance new growth. Investors buy growth stock for its potential price appreciation as the company grows.
INCOME INVESTMENT STRATEGY: An income investmnet strategy identifies sources of immediate income whether through income stocks or bonds.
INCOME STATEMENT: An income statement is a financial document listing income and expenses of a company that reveals how much was made or lost. It is part of the annual report and where you will find the proverbial "bottomline."
INFLATION: Inflation is too much money chasing too few goods. The result is a sharp rise in prices without any extra value added making money worth less. Inflation leads to rising interest rates and a cooling of the economy. If the economy slows down too quickly and too far, it may slip into a recession or even a depression.
INITIAL PUBLIC OFFERING: The first time a company issues stock for sale to the public is known as the initial public offering or IPO. The company is said to be “going public” when this happens. The offering is highly regulated and often surrounded by a lot of media attention.
LONG and SHORT: Somewhat the equivalent of “buy and sell,” however with an investing twists. If enter an order to “go long 100 shares of IBM,” it means you want to buy IBM. Likewise, to “short IBM” is to sell the stock. Long also describes your position in a stock. For example, your brokerage statement might show you were “long 100 IBM,” which means you own 100 shares of IBM. Your account could also show you were “short 100 IBM,” which means you sold 100 shares of IBM short.
Stock Market Education
Definition of Stock Market Terms
Glossary of stock market terms are taken from about.com: stocks.
STOCK MARKET: Also called the Stock Exchange is a physical location where stocks and bonds are bought and sold, such as the New York Stock Exchange, NASDAQ or American Stock Exchange.
BALANCE SHEET: A balance sheet is an accounting for a company’s assets, liabilities, equity, and net worth at a certain point in time. Part of the annual report. The balance sheet tells you what the company is worth. You will often hear people mistakenly refer to the "bottomline" when talking about the balance sheet. There is no bottomline on the balance sheet - you'll find it on the income statement.
BEAR MARKET: A bear market is one where there are significant and long-term declines in market value a shown by falling market indicators, usually for two quarters.
BLUE CHIP STOCKS: Blue chip stocks refer to the most prestigious and solid companies on the market. It is thought the term came from the fact that blue chips in poker are the most expensive ones.
BULL MARKET: A bull market is one characterized by significant and long-term growth in value in the stock market as shown by rising market indicators. In less technical terms, there are more buyers than sellers.
BUY AND HOLD: A buy and hold investment strategy suggests advocates buying and holding quality investments for the long term, as opposed to engaging in short-term trading.
COMMON STOCK: Common stock is the primary unit of ownership in a corporation. Holders of common stock are owners of the corporation with certain rights including voting on major issues concerning the corporation. Shareholders as they are known have liability limited to the value of stock they own.
DIVIDEND: Dividends are profits paid to shareholders of the company. The board of directors authorizes the payment, usually quarterly. Companies pay most dividends is cash, however some use stock instead. Dividends are taxable income to shareholders. Not all companies pay dividends. Rapidly growing companies may elect to put money back into the business to fund further growth.
DAY TRADER: A day trader is someone who engages in aggressive trading using an Internet connection to a broker or a terminal in the broker’s office. Day traders may make dozens of trades each day with the hope of making numerous small profits.
DIVERSIFICATION: Diversification is the calculated spreading of your investments over a number of different asset classes. This cushions your portfolio if one part is down, since different asset classes (stocks, bonds, cash, etc.) seldom move in the same direction. In mutual funds, you achieve diversification by the fund owning 50 stocks, instead of a few.
EARNINGS PER SHARE: Also known as EPS is calculated by dividing a company's net revenues by the outstanding shares. This gives you a number you can use to compare the earnings of companies since it is unlikely any two companies will have the same number of shares outstanding.
ECONOMIC INDICATORS: Economic indicators are key measurements of the economy, such as unemployment, wages, and prices, etc. that gauge the health of the economy. They can have a positive or negative influence on stock prices.
Glossary of stock market terms are taken from about.com: stocks.
STOCK MARKET: Also called the Stock Exchange is a physical location where stocks and bonds are bought and sold, such as the New York Stock Exchange, NASDAQ or American Stock Exchange.
BALANCE SHEET: A balance sheet is an accounting for a company’s assets, liabilities, equity, and net worth at a certain point in time. Part of the annual report. The balance sheet tells you what the company is worth. You will often hear people mistakenly refer to the "bottomline" when talking about the balance sheet. There is no bottomline on the balance sheet - you'll find it on the income statement.
BEAR MARKET: A bear market is one where there are significant and long-term declines in market value a shown by falling market indicators, usually for two quarters.
BLUE CHIP STOCKS: Blue chip stocks refer to the most prestigious and solid companies on the market. It is thought the term came from the fact that blue chips in poker are the most expensive ones.
BULL MARKET: A bull market is one characterized by significant and long-term growth in value in the stock market as shown by rising market indicators. In less technical terms, there are more buyers than sellers.
BUY AND HOLD: A buy and hold investment strategy suggests advocates buying and holding quality investments for the long term, as opposed to engaging in short-term trading.
COMMON STOCK: Common stock is the primary unit of ownership in a corporation. Holders of common stock are owners of the corporation with certain rights including voting on major issues concerning the corporation. Shareholders as they are known have liability limited to the value of stock they own.
DIVIDEND: Dividends are profits paid to shareholders of the company. The board of directors authorizes the payment, usually quarterly. Companies pay most dividends is cash, however some use stock instead. Dividends are taxable income to shareholders. Not all companies pay dividends. Rapidly growing companies may elect to put money back into the business to fund further growth.
DAY TRADER: A day trader is someone who engages in aggressive trading using an Internet connection to a broker or a terminal in the broker’s office. Day traders may make dozens of trades each day with the hope of making numerous small profits.
DIVERSIFICATION: Diversification is the calculated spreading of your investments over a number of different asset classes. This cushions your portfolio if one part is down, since different asset classes (stocks, bonds, cash, etc.) seldom move in the same direction. In mutual funds, you achieve diversification by the fund owning 50 stocks, instead of a few.
EARNINGS PER SHARE: Also known as EPS is calculated by dividing a company's net revenues by the outstanding shares. This gives you a number you can use to compare the earnings of companies since it is unlikely any two companies will have the same number of shares outstanding.
ECONOMIC INDICATORS: Economic indicators are key measurements of the economy, such as unemployment, wages, and prices, etc. that gauge the health of the economy. They can have a positive or negative influence on stock prices.
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