Stock market investment sounds pretty simple to some. You monitor the past performance of stocks, see what the majority of investors are doing currently and then you decide to invest. Sounds pretty simple right?
Sadly, that is not how the stock market works. Monitoring the past performances of a stock is definitely important. However, it is not the only factor that deserves importance. Understanding a particular stock and studying it for a significant amount of time is crucial before making an investment decision. The famous stock market crashes throughout history took place because of haste decisions by investors.
Keep in mind readers, that this article does not aim to provide smart strategies for stock market investing. Rather, it aims to provide the basic information that an investor should look out for before coming to a decision.
What is stock market investment?
Stock market investment deals with the buying and selling of shares of stocks. Each country in the world possesses a number of significant stock exchanges where buyers and sellers meet. The United States of America has the American Stock Exchange (AMEX), the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASDAQ). Canada has the Toronto Stock Exchange (“TSX”), the Neo Exchange (“Neo”), Toronto Venture Exchange (“TSXV”), and the Canadian Securities Exchange (“CSE”). And, the United Kingdom has one of the oldest stock exchanges in history, the London Stock Exchange.
Like these, there are many stock exchanges situated all around the world. The buyers of shares attempt to buy shares at low prices and aim to sell them at a profit after some time. The sellers of shares sell shares when they feel they can no longer profit off of them. They then either reinvest their profit in shares of new stocks or keep the profit for themselves. The following terms will better explain the necessary terms that one needs to know if they want to invest in shares.
Some Stock Market Investment Terms:
Dividends From Stock Market Investment
A company either makes a profit or incurs a loss. In the case that a profit is realized, the company releases part of the profit to its shareholders and the rest is reinvested into the company. The amount that goes to the shareholders are the dividends. Dividends are distributed on a fixed periodic basis. These periods can be quarterly or annually depending on local rules and regulations.
Bull-Market
There are times when prices of stocks can be expected to go on an upward trend. During these times investors smartly research and pick stocks they feel can give them a value for their investment. Bull-markets on average last for 4 years and usually include stocks of food companies.
Bear-Market
In contrast to bull markets, bear markets take place when investors feel that prices of stocks will be on downward trends. However, investors can still make money off of a bear market. The usual method includes borrowing the share of the stock in the bear market from the broker. The borrower will then sell the share at the present market equilibrium price. If the bear market continues for a long time, the borrower buys the share back at a lower price. The borrower then returns the amount owed to the lender and keeps the difference as their profit.
Margin
A margin account allows an investor to borrow money from the broker to make an investment. The price of the stock and the amount of the loan need not be the same always. The difference between them is called the margin.
Blue Chip Stocks
For investors at the beginner’s level, their aim will be to make profits on their investments and get a hang of doing so. What better way than to do that than investing in blue chip stocks? These stocks always offer stable dividends to their shareholders but there is a catch. Blue chip stocks offer the most security of any investment in the stock market. With high security there is low risk. And, the lower the risk in an investment, the lower the rewards. Nonetheless, blue chip stocks always offer consistent dividends albeit small dividends.
Day trading
This is a dangerous form of trading stocks but one that yields high results if executed well. It is the habit of buying and selling a share(s) of a stock on the same day. The end goal of the one practicing this type of investment is to make incremental profit on each trade. Then they want to compound these incremental profits as time goes on.
Initial Public Offering
One of the most looked forward events for investors. This event takes place when a private company goes public to raise even greater money for itself. Investors who can buy these shares at the earliest always anticipate that they will make a large profit sooner or later.
A Stock Quotation
While it is very useful to know some of the stock market terms, it is also equally important to know how to read a quotation of a given stock. Usually the factors included in a stock quote are the following:
- Last Trade: The last price at which the stock was traded. For their own better understanding, investors compare this value to the closing price of a stock.
- Trade Time: This is pretty self-explanatory. This is the time of the last trade.
- Change: this change symbolises the difference between the last traded price of a stock and the opening price of the stock the next day. A prominent change indicates that a stock price is either going down or going up. One of the most important metrics, this helps investors understand the volatility of the market if they observe this metric for a number of days.
- Previous Close: This is the closing price of the previous day. Comparing this with the current day’s closing price enables investors to know how strongly a stock performs at the end of each day.
- Opening Price: this is the price of a stock that is initially recorded at the start of trading day.
- Bidding Price: This is the highest price that buyers are willing to buy shares for
- Asking Price: this is the highest price that sellers are willing to sell their shares for