Knowing everything there is to know about investing only comes with experience. However, if you’re new, you’re likely doing as much research as you can about investing basics to try and avoid making mistakes. It’ll be hard to understand information on investing if you don’t have the right vocabulary. Here’s a little glossary of investing basics to help get you started.
Bear Market vs. Bull Market
You’ll hear these two terms a lot when it comes to the stock market. Each one refers to the current trend in the market. When the market increases or goes up aggressively over a period of time, this is known as a bull market. This usually occurs when there is a strong economy and low unemployment levels in the country. Investors see the stock market rising and decide it’s a great time to invest because it’s continually going up. Investments drive the market and the market drives investments – it comes full circle.
A bear market is the opposite. This period usually occurs after some economic downturn and higher unemployment. It’s also called a seller’s market because investors often try to sell their stocks at this time before they lose money.
The first time a private company goes public and begins to sell stock shares, this is known as an Initial Public Offering or IPO. It’s just the process of going from private to public. Companies may do this to raise capital to pay off debts or fund new initiatives, elevate their public face, or give their employees the option of diversifying their holdings or selling portions of their private shares to liquefy.
ICO stands for Initial Coin Offering. Similar to the IPO process, except that investors receive cryptocurrency instead of stocks. A company must connect to a blockchain and create a plan (known as a white paper) explaining how their cryptocurrency works. Anyone can do this with their company and the market is mostly unregulated for now. This also makes ICOs a little riskier.
A virtual or digital currency that is not issued by a central authority, like a bank or government, and is instead issued by a company. This currency can be traded specifically for services from that company or other places where cryptocurrency is accepted. There are over 6,700 different types of cryptocurrencies at this article’s writing, and you can expect that there will be even more in the next few years.
Stocks & Shares
Stock or equity is a share of a company. As the company makes money, your share will grow as well. When you buy a stock, it’s like you’re investing in the company. The amount of shares you buy tells you how much of the company you “own.”
This is a handy method of keeping track of stocks, similar to a clock – thus, the name, ticker. A “tick” is any change in the price of the stock/share/security. A company’s ticker symbol is the shortened symbol used to denote a specific company on a specific market, such as the New York Stock Exchange. The symbol is made up of a couple of letters or numbers. Apple, for example, trades on the NASDAQ and uses the ticker symbol: NASDAQ: AAPL in trading.
Averaging down is an investment strategy many company owners and employees practice. When a stock price goes down, a stock owner may purchase additional shares at the new, lower price, thus lowering the amount they pay for these stocks.
An individual person or a firm that places investments and advises on security exchanges on behalf of an investor. A broker acts as an intermediary.
When you buy and sell over the course of a day, or if you do this multiple times throughout the day, this is known as day trading.
This term refers to a listing service for companies that aren’t listed on a major stock exchange, like the NYSE. A pink sheet is usually synonymous with penny stocks.
A stock dividend is when a company distributes some of its earnings to a group or class of shareholders, often determined by a board of directors. It’s often used as a reward system for investors for putting money into the business.
Your portfolio is a rundown of financial investments, including stocks, commodities, cash, and other cash equivalents.
A sector can be thought of as an overall industry – a collection of businesses that share operating characteristics.
Simply put, volatility is the range of price changes that any stock or security will go through over a given period of time. For example, a highly volatile stock is one that rapidly changes and goes through highs and lows quickly. Understanding a company’s volatility is a part of understanding investing basics.