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.