Basic Investing Terms for Stock Market Beginners

Being profitable in the stock market is not easy as it requires not only your belief, patience, and discipline, but also a great deal of your time to research and adequate understanding of the market, among many others.

Here’s a list of common stock market terminologies that you will inevitably come across in your investing journey. We’ve also added the gist of their definitions to get you ahead as learning these jargons (for newbies) is of extreme importance especially when you are starting out.

The goal here is not to memorize every terminology but use it as a guide to understand each vocabulary so you may take value from it:

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
Bid-Ask Spread – the price difference between the bid and the ask
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
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
Margin – the equity value an investor has in his account/portfolio
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.

MARKET STATUSES

Pre-Open Period – trading participants can modify and cancel existing orders or enter new orders
Pre-Open No-Cancel Period – trading participants may enter new orders but may not modify or cancel open orders
Opening Period – opening prices are calculated during this period
Continuous Trading – the period where trading participants’ orders are matched and may enter, cancel, and edit orders
Market Recess – the period where trading-related activities are halted
Market Resumes – trading-related activities continue
Pre-Close Period – indicates the last two minutes to open new orders but can’t cancel or modify orders
Run-off Period – trading participants can still enter limit and market orders but matching for both is executed at the closing price of the stock

ORDER TERMS

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

ORDER TYPES

Market Order – these are buy and sell orders that transacts the current bid and ask prices
Limit Order – this type of order allows you to set the price you’re willing to buy or sell a stock far from the current prices
Iceberg Orders– allows you to hide a portion of the volume of your order

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
Sector – a subsection in the exchange of companies that share similar characteristics in operation
Sub-sector – a subset of a sector of a group of stocks that have the most similarities in terms of operation

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
Cut Loss/Stop Loss – realizing or actualizing your loss by selling the stock to save you from a bigger loss
Bottom-Picking– the act of buying a stock with the anticipation that it has bottomed out from its downtrend
Divergence – this happens when a technical indicator and price action are headed into opposite directions
Bullish Divergence – a signal that indicates an impending upward move
Bullish Signal – signal that is given by a technical indicator that indicates a possible bullish move
Bearish Divergence – a signal that indicates an impending downward move
Bearish Signal – a signal that is given by a technical indicator that indicates a possible bearish move
Volatility– the proportion or rate wherein the price of a stock is increasing or decreasing
Confluence – this occurs when multiple indicators or strategies share the same sentiment/bias
Insider Trading – this is done by someone who has non-disclosed, nonpublic information about a company and trades its shares based on it
Rally – a period of continuous surges, whether downward or upward, in price
Parabolic Move – an upward movement in price where it moves in the manner of a parabola
Oversold – a reading made by a technical indicator that indicates that it’s below its period’s “true” value
Overbought – a reading made by a technical indicator that indicates that it’s above its period’s “true” value
Momentum – the rate of the acceleration of a stock’s price
Momentum Trading – the method of buying a stock while there’s buying pressure from other investors or traders
Range Trading – a strategy where a trader buys at support and sells at resistance during a sideways movement
Target Price (TP) – the price point where you plan to sell a position
Time Stop – a way to sell a stock when it isn’t moving within your bias in a specified time
Trail Stop – an amount below the current trading price of a stock that you plan to sell it for a profit
Tranche Buying – the action of buying a stock in portions
Tranche Selling – the action of selling a stock in portions

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