Stock market is a place where dreams come true. That is why lots of people are attracted towards it. You can make a lot of money by investing in stock market even in a short period of time. But stock market terms can be confusing to understand in the beginning.
A beginner can face troublesome times, if he is unable to grasp certain basic concepts and terms of the stock market. A newbie should make himself familiar with the terms used on a daily basis in the stock market. This will expose him to some serious trading. So, lets begin with some basic terms of the stock market:
Share/Stock
This is the fundamental unit of trading. As the name suggests, it means that when a person buys a share he/she is entitled to a stake or share in the company. These shares can be bought and sold publicly. To some extent, we can say, that he owns a certain portion of the company. By doing this, he earns some rights as a stockholder. These rights include voting right during the shareholders meetings and profit in the company’s earnings.
Broker
He is the person who executes the trades in real time and handles the entire investment portfolio. He is like a middleman between the company and the investor. Sometimes, he may also advise the investor while making his choice of stocks. Stock brokers can be of various types such as full time broker, discount broker and online broker.
Bear Market
Bear markets means that market is witnessing a downturn. This results in the depreciation of stock prices and is the ideal environment to sell you r stock. Most investors prefer to sell their stock as they are pessimistic about the growth perspectives.
Bull Market
This market signifies growth and upward trend in the market. In a bull market, stock prices tend to rise and investors follow buying strategy. The whole environment of the market is positive and investors focus on buying low and selling high.
Dividends
If a company achieves a profitable quarter, then it gives bonus to its shareholders. This bonus is called dividends. It is usually seen that when people receive a bonus, they tend to re-invest the amount again in the market. This allows the money to grow at a faster pace.
Futures
Futures are also an important investment tool. Here, you buy a particular stock at a certain period in the future. If the stock price appreciates in the future, then you will earn profit. However, if stock prices declines, then investor would incur losses.
Day Trader
A day trader undertakes aggressive trading by buying and selling all the stocks within the same day. He executes many small trades throughout the day to earn small profits and closes all his positions at the end of the day.
Margin Trading
It is an interesting concept. This allows a trader to actually borrow some money from the market to purchase a certain stock. The trader can buy a stock at a fraction of the actual price. He can pay the remaining cost when he sells the stock. The profit covers the remaining price. This involves substantial amount of risk.
Besides these terms, there are countless other investment terms. To a newbie, these terms may be intimidating in the beginning. This is the reason why many people leave trading after the first few months. People can’t cope up with so many terms and get confused. This confusion can lead them to execute wrong trades.
Do your homework before you step in to the market. The knowledge of these terms can harvest enormous profits for you. With just a little hard work, you will realize how easy trading can be.