10 Jargon Beginners Must Know About The Stock Market

Many say investing in stocks is one of the best financial choices to grow money. Acquiring them is indeed a great way to develop your money. However, entering the market can be overwhelming, daunting, and intimidating, especially for beginners.

Aside from its complexity, the stock market can be enormous for beginners because of its vast rules, investment strategies, markets, and terms. When people with stock expertise talk about the market, it can be challenging for beginners to keep up if they use jargon that only professionals would know.

To know about the market, aspiring stock acquirers must learn the meaning of words, phrases, and terms people in the market use to familiarise themselves. In this post, let’s understand the meaning behind the stock market jargon people use.

1 – Indices

S&P Global defines an index as a group or basket of securities, derivatives, or other financial instruments that represents and measures the performance of a specific market, asset class, market sector, or investment strategy. In short, indices are a hypothetical portfolio of securities representing a particular market or segment.

When people use the term ‘indices trading,’ they’re referring to taking a position on a stock index, measuring several different companies’ performance.

2 – Arbitrage

Investopedia defines arbitrage as the simultaneous purchase and sale of an asset in different markets to exploit tiny differences in their prices. When you perform an arbitrage in the stock market, you earn a profit because you get to sell an asset at a higher price than you paid for it. 

3 – Ask

When a stock professional uses the term ‘ask,’ he’s referring to the lowest price at which a seller will sell his stock. The word ‘ask’ simply refers to when a trader offers his shares for sale at a particular price. If you decide to sell your stock in the future, you’ll set an ‘ask’ that aligns with the market and its performance ratios. 

4 – Bid

Aside from ‘ask,’ another common stock jargon is the term ‘bid.’ Stash.com defines ‘bid’ as the price a trader is willing to pay for shares of a stock or another asset. I mentioned previously that ‘ask’ is the lower price at which a seller will sell the stock. ‘Bid,’ on the other hand, refers to the highest price a buyer will pay to buy a stock. 

5 – Bid-ask spread

When you listen to stock owners talk, you’ll often hear the term ‘bid-ask spread’ like the ‘ask’ and ‘bid’ terms. Stash.com refers to ‘bid-ask spread’ as the difference between the ‘ask’ price and the ‘bid’ price for an asset in the market. In other words, it refers to the difference between what a buyer is willing to pay and the price sellers ask for a stock’s value.

6 – Dividend

Investopedia defines a ‘dividend’ as a reward paid to ‌shareholders for their investment in a company’s equity. Dividends are a company’s payment to its shareholders that consists of additional company shares instead of cash. They pay their shareholders dividends in fractions, and they can reinvest their dividends back into the company.

7 – Dividend Yield

Forbes defines ‘dividend yield’ as the ratio showing shareholders how much income they earn from their yearly dividend payouts for every dollar they invest in a stock, mutual fund, or exchange-traded fund. When investors use the term ‘dividend yield,’ they refer to the annual dividend payment in percentages of its market value.

Investors use ‘dividend yield’ to know their annual return on investment and compare it to the price they paid for its security.

8 – Growth Stocks

When people advise you to invest in ‘growth stocks,’ they refer to investing in companies most likely to grow sales and earnings faster than the market average. At first, the market value of growth stocks is expensive. But once you analyse their performance and watch their company grow, its share price would seem cheap. Investing in growth stocks can be risky for beginners. And so, learning a company’s index and past market performance is critical.

9 – Initial Public Offering (IPO)

When a company announces it’s opening its shares of a private corporation to the public in a new stock issuance for the first time, it’s called an IPO or initial public offering. Before a company can hold an initial public offering, it must meet the requirements of exchanges and the Securities and Exchange Commission or SEC.

10 – Liquidity

When people advise buying a stock or share, they usually recommend a stock with a high liquidity rate, particularly for beginners. Investor.gov defines a stock’s liquidity as the term used to describe the rate at which an investor can buy or sell a stock without impacting its stock price. In short, liquidity refers to the rate of how quickly an investor can turn his shares into money once he sells his shares or buys a new one.

Aside from these, there are more that will help you advance in the market.

These ten are just some of the many that will help you learn the stock market better. As you make your way into the stock investment world, you’ll come across more technical terms that will soon be a part of your vocabulary if you continue to educate yourself about their meaning. 

About the author:

Bianca Banda writes informative trading data, tips, and strategies about the forex market. She highly recommends trading with FP Markets–the industry’s most efficient, reliable, and trusted broker by many.