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Stock Market Terms to know

Updated: Aug 22, 2021

Below are some terms that investors, especially beginning investors should know when entering the stock market:

Averaging Down - When an investor buys more of a stock as the price goes down. This makes it so your average purchase price decreases. You might use this strategy if you believe that the general consensus about a company is wrong, so you expect the stock price to rebound later.

Blue Chip Stocks - The stocks behind large, industry-leading companies. Blue Chip Stocks offer a stable record of significant dividend payments and have a reputation of sound fiscal management.

Dividend - A portion of a company’s earnings that is paid to shareholders, or people that own that company’s stock, on a quarterly or annual basis.

Index - A benchmark that is used as a reference marker for traders and portfolio managers. A 10 percent return may sound good, but if the market index returned 12 percent, then you didn’t do very well since you could have just invested in an index fund and saved time by not trading frequently.

Initial Public Offerings (IPO) - An IPO is the first sale or offering of a stock by a company to the public. It happens when a company decides to go public rather than remain solely owned by private or inside investors.

Leverage - When you use leverage, you borrow shares in a stock from your broker with the goal of increasing your profit. If you borrow shares and sell them all at a higher price point, you return the shares and keep the difference.

Margin - A margin account lets a person borrow money (take out a loan, essentially) from a broker to purchase an investment. The difference between the amount of the loan and the price of the securities is called the margin.

Float - Float refers to the number of shares that a company issues that are available for trading on secondary markets without restriction.

Market Capitalization - Market capitalization is the market value of a company's outstanding shares and is used by the investment community in ranking the size of companies, as opposed to sales or total asset figures.

Rule of 72 - The Rule of 72 is a simplified equation that can help estimate the number of years required to double the money that is growing at a specified rate of return.

Nasdaq - The Nasdaq Stock Market or NASDAQ. is an American stock exchange. It is the second-largest exchange in the world by market capitalization.

Dow Jones Industrial - Dow Jones Industrial Average (DJIA) is one of the most-watched indices in the world. An index of 30 blue chip stocks that use a variable to create a price-weighted average that fluctuates with price changes in the component stocks.

S&P 500 - The Standard and Poor’s (S&P) 500 index is a widely used stock market index that follows the stock price performance of 500 large cap companies.

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