If you are a new investor entering the stock market, you might get overwhelmed with all the investing terminology. Don’t let that intimidate you, remember that everyone was a beginner at some point. But to help you find your way on the stock market I’ll explain some of the most common investing jargon for you.
Investing terminology explained
Before we dive in, let’s have a look at what investing actually is:
Investing
The act of putting money towards assets with the goal to generate income or profit and build wealth.
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Ok, that’s clear. Now let’s proceed with some much used investing terminology.
1. Bear market
What we call a longer period of time where there is a decline in prices. The drop is usually around 20% or more compared to recent heights. Mentioning the words “bear market” and “near” in one sentence can cause nausea with a lot of investors. It means that the market is expected to go down and that stocks will decline in value. Of course that also means prices are cheaper, and depending on your strategy it might be a good opportunity to buy.
2. Broker
A broker is someone who facilitates transactions on the stock market. Stock exchanges only accept orders from people or firms who are a member of the exchange. That means that investors like you and I need an intermediary to put through our orders. The broker provides that service and receives money in the form of fees.
3. Brokerage account
An account that allows you to buy, sell and hold investments. I always compare a brokerage account with an internet browser: it is your gateway. Usually a brokerage account consists of two elements.
The first one is a cash balance that serves as a checking account for orders on the stock market. You need to transfer money to the cash balance in order to make a purchase.
The second part is your actual brokerage account, the place where you store your investments. Whenever you sell a stock, ETF, fund… the money will become available on the cash balance.
4. Bull market
The opposite of a bear market. In a bull market, the prices rise and investors are optimistic about the economy and they are confident that the good results will keep on coming in. Bull and bear markets are often intertwined with the general situation in the world. An example of a bull market is the period after the financial crisis – and bear market – in 2008.
5. Dividend
A company can decide to share part of their earnings with their stock holders. That pay-out is called a dividend. Dividends can be paid out in cash or in new stocks. The board decides how much the dividend will be, and in what form the investors will receive it.
Dividend investing is a strategy where an investor opts for mostly stocks that pay dividend, to build a passive income. You can either live off those dividends or you can re-invest them in other products. Mind you, to have a significant dividend you need to invest a significant sum.
6. Horizon
The amount of time you are planning to hold an investment before selling it. If you are still young and you start investing to save for retirement, your horizon is really long. But for short term goals it will obviously be shorter. Rule of thumb: the longer the horizon, the more results.
7. Index
An index measures the performance of a specific market or list of stocks. It was created in order to see at once how a whole economy was doing, instead of looking at every stock individually. The performance of an index is measured in points. Famous indices are the Dow Jones (oldest US index that contains 30 stocks) and the S&P 500 (500 large listed companies in the US).
8. Stock exchange
A stock exchange is a platform where financial products are traded. To get access to a stock exchange you need a broker. The exchange used to be a physical place where buyers and sellers got together. They would make transactions by yelling instructions and making hand signals (‘open outcry’). Nowadays everything has gone digital, making the stock exchange much more accessible to everyone with a computer or smartphone.
9. Ticker
A ticker is a symbol that identifies a stock. It is a unique code that you can enter in your broker app to search for and buy a particular product. The ticker usually consists of letters and numbers.
Examples:
MMM – 3M
AAPL – Apple
WOOF – Petco
10. Volatility
Volatility measures how much the price of a financial product goes up and down. If the price goes up and down a lot – with a large difference between the highs and lows – the product is very volatile. Stocks are more volatile than diversified products like ETF’s or mutual funds. Volatility is an important indicator to see if a product suits your strategy or not.
