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Basic Investing Terms for Stock Market Beginners

basic-investing-terms-for-stock-market-beginners

GENERAL INVESTING TERMS

  • Invest – putting your money where it can grow
  • Stock – a share in the company
  • Dividends – the amount of money paid by the company to its shareholders
  • Common Stock – the type of stock that is least prioritized when declaring dividends and mostly profits through price appreciation
  • Preferred Stock – the type of stock that is first prioritized when declaring dividends
  • Risk – the potential of either gaining profits or losing your capital
  • Returns or Rewards – profits earned by investors
  • Short Term – less than six weeks (may vary)
  • Medium Term – six weeks to nine months (may vary)
  • Long Term – more than nine months (may vary)
  • Investors – people who invest their money with the expectation of gaining returns over a longer timeframe
  • Traders – people who buy and sell stocks to earn from price growth over a shorter timeframe
  • Blue-Chip Stocks – stocks of the biggest companies in the country
  • Growth Stocks – stocks which have high growth potential
  • Value Stocks – stocks which have low price-to-earnings or P/E ratio
  • Speculative Stocks – stocks which carry high risk compared to similar stocks
  • Defensive Stocks – stocks which do not decrease in price immediately, even when the market is down
  • Penny Stocks – stocks which trade at a very low price
  • Stock Market – where investors or traders buy and sell company stocks
  • Stock Market Index – a measurement of the value of the entire stock market or a particular industry in the market
  • PSEi (aka PSE Composite Index) – the stock market index of Philippine Stock Exchange which consists of top 30 listed companies based on market capitalization
  • Industry Index – the index of a group of companies which are classified based on their business activities (i.e. Financial, Holdings, Industries, Mining & Oil, Properties, Services)
  • Bullish – used to describe a particular stock market or stock when its value is going up
  • Bearish – used to describe a particular stock market or stock when its value is going down
  • Initial Public Offering (IPO) – when firms are selling their company shares for the first time in the public to raise capital
  • Market Value – the value at which a stock can be sold in the market at a specific point in time
  • Unrealized P/L – profits or losses which have not yet been converted to cash because the investor has not sold the stock
  • Buying Power – the available money an investor has in his account for buying stocks
  • Buy Order – a request made by an investor when he or she wants to buy stocks
  • Sell Order – a request made by an investor when he or she wants to sell stocks
  • Volume – number of shares bought and sold in a particular day
  • Bid – the prices at which the buyers want to buy a particular stock
  • Ask – the prices at which the sellers want to sell a particular stock
  • Trade – made when the bid and ask price have matched
  • Brokers – firms or individuals who are licensed to execute the buy and sell orders in exchange for a commission fee
  • Portfolio – a group of financial assets such as stocks held by the investor
  • Average Cost/Price – the total price at which you bought a group of shares plus the commission fees, divided by the total number of shares
  • Shares – units of capitalization that represent part-ownership of a company (i.e.  buying 1 share means you contributed capital to the company and therefore own an equivalent portion of it)
  • Board Lot – the standardized minimum and multiple number of shares to be traded for a particular stock, depends per price range
  • Stock Order – a request to either buy or sell a stock
  • Normal Orders – orders which follow the normal board lot
  • Oddlot Orders – orders which are less than the minimum board lot
  • Good to Day (GTD) – an option in ordering where your order will expire at the end of trading day when not fulfilled
  • Good to Week (GTW) – an option in ordering where your order will last for a week
  • Good to Month (GTM) – an option in ordering where your order will last for a month
  • Good to Cancel (GTC) – an option in ordering where your order will last until you cancel
  • Cash Dividends – dividends given in the form of cash
  • Stock Dividends – dividends given in the form of additional shares
  • Profits/Gains – the amount that an investor earns when he sells stocks at a price higher than his average costs
  • Losses – the amount that an investor loses in his capital when he sells stocks at price lower than his average costs
  • Stock Split – when a company divides its shares according to a particular ratio, increasing the number of shares and lowering the price of each share (i.e. 1 share becomes 2 shares)
  • Reverse Stock Split – the opposite of stock split, when a company decides to combine its shares in a particular ratio to decrease number of shares and increase price (i.e. 2 shares become 1 share)
  • Most Active – most active stocks in a particular day in terms of volume traded
  • Top Gainers – list of stocks which had the largest increase in price in a particular day
  • Worst Losers – list of stocks which had the largest decrease in price in a particular day
  • Year to Date (YTD) – the period from the beginning of the year (January 1) to present
  • Investment Strategy – set of rules and behaviors an investor practices towards his investment portfolio
  • Peso Cost Averaging – an investment strategy where you put the same amount of money into a particular stock in a regular schedule to get a lower average cost
  • Value Investing – an investment strategy where investors look for undervalued stocks
  • Growth Investing – an investment strategy where investors look for companies which have a high growth potential
  • Cut Loss – realizing or actualizing your loss by selling the stock to save you from a bigger loss
  • Average Down – buying additional shares of a stock for a price that is lower than your current average cost
  • Long Position – A “long” or “long position” is the buying of a security such as a stock, commodity or currency with the expectation that the asset will rise in value.
  • Short Position – A “short”, “short position”, or “short selling” is a trading strategy where the investor sells shares of borrowed stock in the open market. The expectation of the investor is that the price of the stock will decrease over time, at which point the he will purchase the shares to replace those that he initially borrowed.

FUNDAMENTAL ANALYSIS

  • Fundamental Analysis – a method of stock market analysis that evaluates the economic and financial factors affecting the intrinsic value of a company
  • Intrinsic Value – the actual and true value of the company based on all aspects of its businesses
  • Overvalued – when the current price or market value of the stock is higher than its intrinsic value or the average industry price-to-earnings ratio
  • Undervalued – when the current price or market value of the stock is below its intrinsic value or the average industry price-to-earnings ratio
  • Income Statement – provides an overview of revenues, expenses and net income
  • Balance Sheet – provides an overview of assets, liabilities and equity
  • Statement of Cash Flows – traces the company’s cash movement from operating, investing and financial activities
  • Financial Ratios – ratios derived from the financial statements of the companies which are used for evaluating the overall condition of its company performance
  • Price-to-Earnings Ratio (P/E Ratio) – measures the current price of a stock over its company earnings per share, the lower the better
  • Earnings per Share (EPS) – company earnings for the year divided by the number of shares
  • Leverage – borrowed capital or loans used to fund company activities
  • Debt Ratio – the total debt of the company divided by its total assets, the lower the better
  • Debt-to-Equity Ratio or Leverage Ratio – a company’s debts divided by the value of its equity (based on preferred and common stocks)
  • Dividend Payout Ratio – the dividends paid divided by the company’s net income
  • Dividend Yield – the percentage of dividends declared in relation to the stock’s current price
  • Par Value per Share – the price of the stock during its Initial Public Offering (IPO)
  • Book Value per Share – the value of the stock in the company’s books (total equity divided by number of shares)
  • Price to Book Value Ratio – the ratio used to compare company’s current price or market value to its book value, the lower the better

TECHNICAL ANALYSIS

  • Technical Analysis – a method of stock market analysis that uses past data and statistics to predict future movements in the market
  • Trend – the general direction of a market, a stock, or the price of an asset based on a chart of its historical value
  • Uptrend – when price movements consistently reach higher highs and higher lows
  • Downtrend – when price movements consistently reach lower highs and lower lows
  • Sideways – when the price of a stock moves in a generally flat manner
  • Chart – a visual summary of a stock’s prices within a certain period
  • Open – the first price at which a stock is sold for a particular day
  • High – the highest price at which a stock is sold for a particular day
  • Low – the lowest price at which a stock is sold for a particular day
  • Close – the last price at which a stock is sold for a particular day
  • Volume – the number of shares that are bought and sold on a particular day
  • Value Traded – volume multiplied by the price that investors have paid for a stock
  • Indicators/Oscillators – measurements that investors use to anticipate price movements, momentum, and other behaviors of a particular stock or market
  • Support – a price level at which, historically, a stock has had difficulty falling below
  • Resistance – a price level which historically, a stock has had difficulty breaking above
  • Breakdown – a situation where the price falls below the support level
  • Breakout – a situation where the price rises above the resistance level
  • Reversal – the change of a price level from resistance/support to support/resistance after a breakout/breakdown
  • Stop Loss – a specific price at which a trader sells his or her shares in order to minimize loss

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