Knowing financial terms is essential for a first-time investor. The investment world has terms and definitions that have been used for nearly a century. Investment terms are continually added to the network of the investment community. An investor must become familiar with regularly used terms since it will help then to navigate through the financial world of investing.
Without the proper knowledge of essential investment terms, it is impossible to navigate the world of online trading, purchase stocks, or obtain other commodities or investments over phone or electronic mediums. A new investor needs to have a good grasp of the essential terms of the world of the stock market. Having a necessary understanding of these terms will equip a new investor to understand timely news. Knowledge of basic terms can also play a part in their financial decisions. As a new investor becomes familiar with these terms below, other financial terms can be added as his activity in the investment world broadens.
Financial Terms Worth Knowing
Dividend — New investors often ask, “What is a dividend?” A dividend is a payout of money that is part of the profit of a company, but through the decision of the board of directors, it is shared with its stockholders.
Volatility — a measurement of how much security a stock or an investment fluctuates in price over a set amount of time.
Spread — is the monetary difference between the bid and ask prices of an asset or between two assets. Two assets that sell cat food are being traded. Asset ZYX has an asking amount of $4, and XYZ has an asking price of $4.25. The bid price of XYZ is $3.75 and the bid price of XYZ $3.80. The spread is between $3.75 and $4.25 between the two assets.
Rally — continued growth in value of stocks, investments, or markets that occur over a period during either a bull or bear market.
Leverage — leveraging occurs when a company uses borrowed capital to produce income for the company and generate returns on the money it retains at risk. A company receives $1 billion from its IPO and uses it to purchase new offices and expand its distribution network as a means to grow its assets.
Bear Market — a bear market occurs when prices of securities continue to fall consistently over a length of time. The growing attitude during a bear market is a growing pessimism. The ever increasing pessimism becomes a sustaining element in the market.
Bull Market — a bull market is a state of the financial or securities market. During a bull market, a group of securities, stocks, or tools of investment, rise in price. When a bull market takes place, a set of securities is expected to increase over a considerable length of time.
Initial Public Offering — an initial public offering (IPO) is the first stage of development of a company’s offering its stock to the general public for purchase. It is initial because it is the first time being traded on a registered stock exchange. It is public for a reason being it is no longer a privately-held company. Lastly, an IPO is offered to investors to purchase because the price has been set by the bankers who represent the companies offering and the company who places the company into the public’s purchasing power through the stock exchange on which it becomes offered.
What Is Online Trading?
To explain online trading, a new investor needs to understand the way the stock market operates after it opens every day. When the stock markets opens, all the stocks that are being publically traded are being purchased and sold. The prices may vary at any point of the day. When an online trader logs into his account, he sees a specific price which reflects the price at that time during the official trading hours set by the FTC and stock exchanges. An online trader is a person who is represented by a verified stockbroker and can purchase or sell securities electronically. The electronic purchase or sale of a security is marked by the exact time the online trader made the purchase or sold the security as signified by the electronic instrument he uses. Using an automatic buy or sell are all carefully controlled by the FTC.