Trading

Beginner’s Guide to Securities Market:75 Trading Terms You Must Understand

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Many people are curious about trading in security assets, and they don’t know where to start. If you are one of these people, worry not! We will go over 75 different terms that you come across in your interactions with the stock market.

1)Regulation

The security market requires high public confidence to thrive. Investors need protection from any activities that may lead to loss of money. This can range from reporting fraudulent financial figures to none disclosure of crucial information. These regulations protect all participants. The regulation for the stock market varies between countries. It covers topics such as minimum capital requirements and market conduct.

2)Stock

Stock refers to a financial instrument representing ownership in a company. Common stockholders have voting rights. They also get dividends at the end of the year. Public companies are those with ownership of the common people through stocks. The words stocks and shares are used interchangeably because there is little difference between them.

Another term you will also come across that has some commonalities with stocks is securities. They are financial instruments a company can use in raising funds from the public. Equity securities offer ownership to the company. Debt securities are different because repayments will slowly reduce the exposure. In this post, we refer to all interchangeably to refer to stocks.

3)Preferred Stock

This type of equity security has preferences over common shareholders with respect to dividends, liquidation proceeds,etc. Preferred stock pays a fixed dividend, which is usually higher than that of common stock.

4)Securities and Exchange Commission

The SEC is an independent agency of the United States federal government. The SEC is responsible for regulating the securities market and enforcing federal securities law. All countries have similar institutions.

4)Investor protection

This is a term used to describe the measures taken by governments or regulatory agencies to protect investors from financial losses. This can include rules and regulations put in place to prevent fraud or unethical business practices.

5)Stockbroker

A stockbroker is a professional who buys and sells securities on behalf of clients. They usually work for a brokerage firm and are responsible for recommending investments to their clients and managing their portfolios.

6)Portfolio Managers

Their role is to manage an investment portfolio on behalf of clients or a group of investors. They make trading decisions in the securities market, and how to allocate the portfolio’s assets.

7)Investment Banker

An Investment Banker is a professional who helps companies and governments raise money by issuing and selling securities. They work for banks, investment firms, or brokerage houses, and are responsible for helping clients find the best investments opportunities.

8)Custodians

A Custodian refers to a financial institution or an individual designated to hold and manage the funds or assets of another person or institution.

9)Bear Market

A Bear Market is a condition of the stock market when prices fall and widespread pessimism causes the stock index to drop significantly. This is a period when most investors have low confidence in the market. They are happy selling their holdings.

10)Bull market

A Bull Market is a condition of the stock market when prices are rising or expected to rise, encouraging buying. Investors’ confidence is high and they are willing to buy more stock.

11)Short Position

A Short Position means that an investor has sold shares they do not own. You may wonder how this will happen. Dealers have a line of credit that allows them to sell stocks that they do have. This short position will need to be cleared at some time. If the price continues to drop further, the dealer will buy it and settle the position and make some profit.

12) Long Position

When a dealer buys a stock and holds them, he is holding along the position. Long positions are profitable when prices keep rising. Investors with confidence in the company will usually hold long positions for extended periods of time.

13)Square Position

Dealers hold long or short positions depending on their market perception. A situation may arise where holding a position is risky. For example, if you will be away for one week. You will maintain a square position meaning you don’t have any exposure to the market.

14)Day trading

When an investor buys and sells securities during the same day. This means they open and closes the day in a square position. At the end of the day, they know the profit or loss they have made.

15)Arbitrage Trading

This is a situation where a trader buys stock from one market and sells it in another market at profit. Market inefficiency causes this temporary opportunity. The market always corrects over time. Arbitrage trading is every securities market trader’s opportunity to make a quick buck.

16) Blockchain Wallet

Blockchain Wallet refers to a digital wallet that uses blockchain technology to store and manage digital assets. These wallets are used mainly for cryptocurrencies like Bitcoin.

17)Hair Cut

A Hair Cut is a reduction of the price that an investor must pay for borrowing money from their brokerage firm. When a stock is valued at 10,000 dollars as security for borrowing, the bank will apply a haircut. This haircut could be 50% meaning you will receive a 5000-dollar loan.

18) All-Time Low (ATL)

An All-Time Low refers to the lowest price of a security at any time during its history. This level is important in a bear market as it helps the trader predict the next price direction. Closely related to this is the 52-week low, which relates to the lowest level in 52 weeks.

19)All-Time High (ATH)

This is the highest level the price of a stock has ever reached. It gives the bullish trader an indication of where the tide might change unless the market breaks to a new ATH.

20)Blue Chip

Blue Chip Security refers to a publicly-owned corporation that has been around for a long time and is well-established. These companies consistently pay dividends over the period, earning the title of safe investments. Blue-chip securities are most sought in the securities market by investors with a low-risk appetite.

21)Close

All securities markets have working hours. Each country has different times. The close-in stock market refers to the end of a trading session on a particular day. You will also hear the term closing price, which means the price of the last traded stock.

22)Custodian

A Custodian is a financial institution that holds assets like securities for another person or company. The custodian holds the securities for safekeeping. They also offer other services. Some custodians in the US include JPMorgan Chase and Bank of New York.

23)Board Lot

A board lot is a standard trading unit as defined by a particular securities market as a trading unit. The purpose is to minimize trading ‘odd lots’ and to facilitate easier trading. Any amounts less than ” board lots ” are referred to as ”special lots” or ”odd lots”

24)Debt

Debt is an amount of money a company owes the banks and other creditors. Companies with high levels of debt are likely to default in case of unexpected events. Whereas debt is a good way to finance operations, the structure of the debt is critical. Long-term debt is suitable for capital expenses, while working capital requires short-term funding.

25)Derivative

A Derivative is a security whose price derives from the price of one or more underlying assets. These can be stocks, commodities, currencies etc. The derivative trader profits when the price of the underlying asset moves in a particular direction.

26)Diversification

This is the act of investing in different types of assets to reduce risk. This could be in stocks, bonds, real estate, or any other type of investment. It is advisable to split your investments in different stocks and across industries.

27)EBITDA

This acronym stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. Analysts use it to measure their financial performance. EBITDA measures the core profit and is a good indicator of the cash generated by the company.

28)Economic Indicators

These are numbers that the government released periodically that show the state of the economy. They include data like GDP, inflation, unemployment etc. Investors use these indicators to predict the future of the economy and make decisions accordingly.

29)ETF

An ETF is an Exchange-Traded Fund. These are investment funds that track the performance of an underlying index or asset. They are traded on exchanges like stocks and offer investors a way to gain exposure to different markets.

Securities
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30)Exchange

This is a marketplace where buyers and sellers meet to trade securities. The exchanges are either physical or electronic. Most developed countries have a number of exchanges where stocks, bonds, and other securities can be traded.

31)Futures

A Futures contract is an agreement between two parties to buy or sell an asset at a specific price on a future date. Investors use futures to hedge their positions and protect themselves from price movements.

32)GDP

This stands for Gross Domestic Product and is the most important economic indicator to measure a country’s performance. It is the total market value of all goods and services produced within a country in a given year.

33)Growth Stocks

These are stocks that have been performing well over time and show strong growth potential going forward as well. They usually pay lower dividends compared to other types of stocks but deliver higher returns.

34)Hedge Fund

A Hedge fund is an investment fund that uses advanced strategies to deliver high returns. These funds are only available to investors who have a high net worth. They also charge very high fees for managing the investments which reduce their overall performance in the long run.

35)IPO

An IPO or initial public offering is the first time a company releases its securities for trading on an exchange or securities market. This means that it becomes available to all types of investors, instead of just institutions and wealthy individuals who are part of high net worth groups.

36)Long Term Investment

A long-term investment is one that is held for a period of more than a year. These investments are usually in stocks, bonds, or real estate. They offer stability and predictable returns over time and are suitable for investors who do not want to take too much risk.

37)Margin Trading

This is a type of securities market trading where the investor borrows money from the broker to buy or sell securities. The investor is expected to pay back this loan plus interest on it. It offers more buying power but also increases risk as losses are magnified due to margin calls.

38)Market Cap

This is the total value of all stocks in a company on a particular day. It can be calculated by multiplying the current price of a security by all its outstanding shares. This is used to measure the overall size of a company. The higher the market cap the more mature the company.

39)Market Correction

This refers to an event where prices move below their long-term trend line for a certain period. This is usually a temporary occurrence that affects the price. Eventually, the situation settles and prices adjust to the market.

40)Money Market

This is the market where short-term debt securities like treasury bills, commercial paper, and certificates of deposits are traded. Investors can also lend or borrow money with each other in this market at rates that change periodically depending on the supply and demand for funds. Fixed income is the main driver of investors.

41)Net Asset Value (NAV)

This is the total value of all assets in a company less total liabilities. This is a good indicator of the company’s financial strength.

42)Online Trading Platforms

These are websites that allow investors to trade securities online with lower transaction costs compared to traditional exchanges. We also have many APPs today that support online traders.

43)Open Position

This refers to any deal that is not settled, closed, or completed. It can be a short or long position. These positions must be squared off before a certain date and time by either buying or selling the same number of contracts.

44)Options Market

This is where options are traded, and it usually comes with a much higher transaction cost compared to spot trading. Investors use them when they want more control over their investments instead of just investing in assets outright which can be costly if prices drop suddenly at the end of the investment period.

45)Primary market:

This is when a company issues its initial public offering (IPO) to raise money. It is also called the new issue market.

46)Record date

The record date refers to the day when investors who are eligible for dividends receive their dividend payouts. Investors must be listed on the books of the company before this particular date in order for them to be eligible for the payout.

47)Secondary market:

This is where stocks and other securities are traded after they have been initially offered in the primary market. The securities market mostly deals on this market.

48)Speculation

This is when an investor buys or sells a security in anticipation of making a future gain. It is usually done with no regard to the fundamental value of an asset and can cause prices to fluctuate wildly in either direction depending on investor sentiment at that time.

49)Spot Market

This refers to trading assets for cash or other financial instruments instead of trading them through futures, options, swaps etc.

50)Stock index

This is a list of company stocks that are weighted according to their market capitalization. They can be used as benchmarks when evaluating risk and performance in the stock market.

51)Stock Split

This is when a company increases the number of outstanding shares that are traded. It is necessary where the stock price is too high for average investors. Splitting reduces the price per share but does increase the market capitalization.

52)Stock symbols

These are the alphanumeric codes assigned to stocks that allow investors and traders to easily identify them.

53)Unlisted Stocks

These are stocks that are not listed on any exchanges and can only be traded over-the-counter (OTC). They usually come with higher risks since they are not as regulated and we can’t check their past performance.

54)Volatility

This refers to the degree of price fluctuation in a security or index over time and is usually measured by using standard deviation. It has an inverse relationship with risk and an unstable market will also have high volatility levels. Volatility is a thriving ground for speculators.

55)Yield

This is the return on an investment that comes from receiving periodic interest or dividend payouts. Yields are expressed as a percentage based on the current market price of the asset.

56)Dividend

This is a portion of a company’s profits that are paid out to shareholders and usually occurs on a quarterly or annual basis. It can be in the form of cash or stock. Dividends are usually used by investors who want a regular return on their investment and aren’t concerned with capital appreciation in the same way as growth stocks.

57)Annual Report

This is when companies provide an update to shareholders about what has been going on within the company during that financial year. It includes important financial information such as revenue, profits, and dividends paid out.

58)Rights Issue

This is when a company offers current shareholders the opportunity to purchase additional shares in the company at a discounted price. The goal of this is usually to raise more money for the company.

59)Bond market

This is where investors trade bonds. A bond is a debt investment in which the issuer borrows money from the investor to finance different projects.

60)Convertible Bond

This is a type of bond that can be converted into shares of the company at a predetermined price. It usually gives the holder some upside potential.

61)Annual Report

This is when companies provide an update to shareholders about what has been going on within the company during that financial year. It includes important financial information such as revenue, profits, and dividends paid out.

62)Statement of Financial Position (SFP)

This refers to a snapshot of how financially healthy a company is at a particular time. It provides important information like assets, liabilities, and shareholder equity.

63)Equity or net worth

This refers to the difference between total assets on one side of the balance sheet, and all debt plus shareholders’ equity on the other side. Equity is the contributions of the owners of the company.

64)Earnings per share (EPS)

This is a metric that shows how much profit a company generates for each outstanding share. You can calculate it by dividing net income by the number of shares outstanding.

65)Dividends per share (DPS)

This tells us how much money a company pays out to its shareholders in dividends every year. You derive it by dividing by the number of outstanding shares.

66)Financial Year

This is the 12-month period that companies use to report their financial results. It usually runs from April until March the following year.

67)Gross Domestic Product (GDP)

This is a measure of a country’s economic activity. It shows the total value of all goods and services produced within that country for a year, regardless of who owns them.

68)risk-loving investors

These are individuals who want to take on more risk in order to earn higher returns. They invest with little regard for their initial capital or how much they could lose if things go wrong.

69)Speculation

This is when investors buy and sell assets in the hope of making a quick profit, rather than investing for the long term. It can be a risky business, as prices can move up and down very quickly.

70)Unlisted Stocks

This refers to shares that are not listed on any stock exchange. It is usually an indication of a company’s size and financial health, as most large companies choose to list their shares in order attract more investors.

71)A BETA Factor

This is used by analysts when measuring the risk associated with a particular stock. It shows how much the stock price is expected to move in relation to the overall market.

72)Commodity Exchange

This is where buyers and sellers trade commodities, such as oil, wheat, or gold. It is an important part of the global economy and allows farmers and producers to sell their goods at a fair price.

73)Hedge funds

These are investment funds that use a variety of strategies to make money, including hedging (which is where the name comes from). They can be very risky, but also offer the potential for high returns.

74)Holding Company

This is a company that owns other companies. It is used as a way to manage and control the different businesses within its portfolio.

75)Stock under-valuations

This refers to when a stock price is lower than what the market expects it to be, based on its fundamentals. For example, if Company A has strong earnings growth but this isn’t reflected in their share price, then that could indicate an under-valuation.

Thank you for reading. Let us know which terminologies we missed out.

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