When I first started investing, I felt completely out of my league. It was hard for me to understand what the stock market even was, (a virtual market where you buy and sell things you can’t see?) let alone understand all the technical terms being thrown around.
I got started really small, investing a few bucks on an app I found that made it easy to understand. A few years later, and I’m holding my own in investing conversations with friends!
I wish I had a cheat sheet for those first few months where I felt out of my league.
So I came up with 21 stock market investing terms you need to know and two bonus ones to start you off:
Stock
Let’s start with what we’re buying and selling when we invest. A stock is a portion of a company that you can buy into. Even though you technically own the company, you don’t necessarily get to make decisions on its behalf, but you do own a portion of it on paper.
You might also receive dividends given to shareholders! You can also sell the stock shares when you want your money back. You do this by buying and selling stocks on the stock market. Speaking of…
Stock Market
The stock market is a market that allows companies to sell these “pieces of a company” or stocks so that investors can buy into the company. These stocks are bought and sold by investors like you and me on the market.
Think of the market as an actual farmers market you might visit, except online & using apps like Webull or Robinhood. It opens and closes at a certain time, and you might pay different prices for a commodity today than you would tomorrow.
The market includes several “exchanges,” a few of which are listed below.
19 Stock Market Investing Terms To Know
1. The Nasdaq
The Nasdaq, or the National Association of Securities Dealers Automated Quotations, is an electronic stock market where you can buy and sell online. Big names on here include Apple & Google.
2. The New York Stock Exchange
The NYSE started as an actual physical “exchange” with a physical location in NYC, and traders yelling and signalling to make their trades. Now it’s done more online, but this stock exchange is still the biggest in the world.
3. Share
A share of stock is this “portion” of the company we were talking about earlier. It allows you to invest in a company without buying the whole thing. You can purchase one or several shares of a company on the stock market.
You’re called a shareholder when you own a share of stock in a company. Right now, I’m a shareholder in both Apple and Tesla stock!
Owning shares helps you own “part” of a company, and participate in the invigorating world of investing.
4. The Dow Jones Industrial Average
Remember how we talked about the Nasdaq and the NYSE? Well the Dow Jones Industrial Average is an average of 30 corporation’s stock values from both of these markets.
It’s a great way to track how the market is doing as a whole. If you’re looking online to see how the stock market as a whole is doing on any given day, the Dow Jones will probably be the measurement that pops up.
5. S&P 500
The S&P 500 is very similar to the Dow Jones, however it includes 500 of the largest companies’ and averages their values on the market. It’s a great way to tell how the highest-earning American companies are doing.
6. Dividends
Dividends are special “bonus” earnings paid out by companies to their investors. Typically, if a company is doing well, they’ll put the revenue back into their operations, and any extra can be paid out in dividends.
Occasionally, even if a company isn’t making crazy profits, they’ll still pay shareholders a dividend. You’ll either get these as a separate payment, or the company will pay you the dividend in the form of additional stock in your name.
I just got some dividends for my Apple stock the other week! My money is making money for me. Not all stocks come with this perk, but some do.
7. Securities Exchange Commission
The SEC is the “police” of the investing world, if you will. They set the standards and rules surrounding stock market investing to make sure there’s level playing ground.
This helps prevent fraudulent investing, like the Martha Stewart scandal in 2003. She sold some of her stock the day before it decreased in value by a lot, and she was convicted of “insider trading” (meaning she had insider knowledge of a company and used that to her advantage on the market).
8. Portfolio
Your portfolio is just the collection of your investments. Think of it like your cart at Target. It “holds” everything you have bought!
You can also buy specifically tailored portfolios from different fund companies, and they include several different investments (think of this like someone filled your Target cart for you).
9. Stock Symbol or Ticker Symbol
This is a three to five letter “symbol” assigned to each stock to tell the difference between them. It’s typically a shorthand for the company’s name and helps investors tell the difference between each stock.
My Tesla stock has a ticker symbol of “TSLA.”
10. Broker
A broker is someone who’s buying and selling your stocks on your behalf. They are basically a buffer between you and the stock market. In order to make a living for themselves, they’ll charge you a commission for these transactions.
Within my retirement portfolio, there are registered brokers in charge of managing buying and selling the funds that make up the portfolio to make sure the portfolio keeps increasing in value.
11. Bid
A bid is the highest price that the buyer is willing to pay for a stock. It’s just like at the farmers market, if you want to barter for a better price for your sweet corn.
It’s important to know this term if you’re going through a broker, since you’ll be working with them to buy stocks at the prices you want.
12. Ask
An ask is the lowest price a seller is willing to sell a stock for. Here, the farmer at the market is letting you know that they can’t go lower than a certain price on their corn.
This is also an important concept to know if you have a broker, since you’ll want to get the most possible money you can when you sell your stock.
13. Capital Gain
Your capital gain is the difference between what you bought your stock for and how much it increased in value.
Capital gains don’t exist until you sell the stock you had bought into, at this point the increase in your investment is counted as a gain.
If I sold my Apple stock right now, I’d probably have capital gains of about $100. Another important fact about capital gains is that they’re taxed. So, I’d be paying taxes on the $100 I got in addition to what I had initially invested.
14. Capital Loss
Capital loss is the opposite of capital gain. It’s the difference between what you paid for a stock and what you end up making when you sell it, but this difference is negative, and therefore you have a loss.
Hopefully this isn’t something you run into, but if you’re buying into tons of stock, it might just happen.
15. Volatility
Volatility is how a stock moves up and down day to day. So, if you’re watching your stocks each day, they might gain 3% one day and be down 5% the next. This is just a part of volatility. It can sometimes be used in a negative context, but volatility can also be good in the long term!
16. Open
Market open signals the start of when you can trade! It happens at 9:30 AM EST on Monday through Friday for the NYSE and the Nasdaq.
17. Close
Market close signals the end of when you can trade during the day on the stock market. It happens at 4 PM EST each day Monday through Friday for the NYSE and the Nasdaq.
However, you can put in an order to buy or sell a stock after the market closes, it will just happen the next time the market opens. When I bought my Tesla stock, it was around 6 PM EST, and the transaction went through the next day at 9:30 AM EST.
18. Bull Market
A bull market is when the stock market appears to be rising (an overall increase in the value of all shares of all stocks on the market combined) or is expected to rise. It typically means good news for investors!
19. Bear Market
A bear market is just the opposite. It’s when the market as a whole is not doing well, and experiences an overall decline in stock prices.
A good example of a time this happened would be the financial recession in 2008. It probably means it’s a good time to buy stock, not sell, because stock prices are typically lower than they are in a bull market.
20. IPO (Initial Public Offering)
Most companies start out as private ventures that require individual investors in order to grow. However, when a company does decide involve the general public, it will launch as an IPO on the New York Stock Exchange.
In short, this means that regular investors like you and me can now buy shares of the company at its Initial Public Offering (IPO). This IPO simply marks the first time a company’s shares can now be publicly traded on the free market.
In order to go public, a company will need to pass through the regulators at the SEC and will also need to show investors that its a worthy name to invest in, based on its overall perceived value.
21. SPAC (Special Purpose Acquisition Company)
One of the ways a company can become an IPO on Wall Street is with the help a SPAC, or, Special Purpose Acquisition Company.
A SPAC’s sole purpose is to merge with the company that is looking to go public, so that it can increase the private company’s value.
It’s created so that investors can raise enough capital to buy the private company and increase its value for when it finally does go public.
The Bottom Line
It can seem overwhelming that there are 19 terms to familiarize yourself with when you’re starting to invest!
But remember, knowing these terms will serve you well and help you get the most bang for your buck when you invest. I started out using apps to invest in small amounts, and now with a little research I’m able to understand my financial advisor when he asks if I want to invest in a certain company.
It might seem like a different language, but these terms can help you advocate for yourself the next time you need to make a decision regarding investing!
Keep Reading:
- How to Invest in a Stock
- How to Research Dividend Stocks
- 6 Reasons We Think You Should Use Webull To Get Started Trading Stocks
