Stocks – You own part of the company (aka a share in the company). The price of that share can fluctuate given what people think the company is worth (or will be worth) and what they are willing to pay for a share.
Bonds – A bond is a debt investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities. Owners of bonds are debtholders, or creditors, of the issuer.
Alternative Investments – Real estate, art, commodities (like gold) and hedge funds are all examples of alternative investments. However, hedge funds lack the transparency of other types of investments and are generally not available to investors unless they have a fairly large net worth. The other types can be a diversifier in anyone’s portfolio. You can purchase them in the form of a mutual fund or ETF that specialize in an alternative investment. You could also hold them privately, in the case of a rental property, for example.
Mutual Funds – These are funds that own a group of stocks, bonds or other investments. In the case of blended funds, it can be a combination. There are thousands and thousands of mutual funds available for purchase. Some cover certain geographic areas, while others hold companies of a certain size (such as small, mid or large cap).
Exchange Traded Funds (ETFs) – These funds act similarly to mutual funds with a few key differences. They tend to be indexed, but that is changing too. These investments have experienced a dramatic increase in the amount invested and funds offered in the past decade.
Blue Chip Stocks—These are the large, industry leading companies. They offer a stable record of significant dividend payments and have a reputation of sound fiscal management. The expression is thought to have been derived from blue gambling chips, which is the highest denomination of chips used in casinos.
Index—An index is a benchmark which is used as a reference marker for traders and portfolio managers. A 10% may sound good, but if the market index returned 12%, then you didn’t do very well since you could have just invested in an index fund and saved time by not trading frequently. Examples are the Dow Jones Industrial Average and Standard & Poor’s 500.
Dow Jones Industrial Average (DJIA)—It is the most popular and widely used measure of the U.S. Stock Market. It consists of a price-weighted list of 30 highly-traded Blue Chip companies. The Dow is watched by investors as an indicator of the health and direction of the stock market.
S&P 500—Standard and Poor’s 500 Index consists of 500 stocks chosen for market size, liquidity and industry grouping among other factors. &P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. Large Cap refers to a company with a market capitalization value of greater than 5 billion dollars.
Nasdaq—A global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks. Nasdaq was created by the National Association of Securities Dealers (NASD) to enable investors to trade securities on a computerized, speedy and transparent system, and commenced operations on February 8, 1971. The term “Nasdaq” is also used to refer to the Nasdaq Composite, an index of more than 3,000 stocks listed on the Nasdaq exchange that includes the world’s foremost technology and biotech giants such as Apple, Google, Microsoft, Oracle, Amazon, Intel and Amgen.
Exchanges—A market where securities are bought and sold. The ones listed below can be seen more as a service itself that renders a service to a company by connecting buyers and sellers with the shares companies offer to the public. The exchange service will charge money to the company that lists with them. All new companies on an exchange start as an IPO (initial public offering). In a nutshell an exchange provides liquidity or the ability to have an asset or in this case shares sold and bough quickly. (Definition by James Gardner)
NASDAQ—National Association of Securities Dealers Automated Quotation was the world’s first electronic stock market in the early 90’s when most trades were done by telephone to a broker. Grew primarily because of the tech boom by listing now tech giants such as Apple. This exchange helped to lower the spreads between the ask and bid price which is where most money was made by brokers. This exchange acts as a dealer market where the Nasdaq performs the trades as a dealer. Opens at 0930 closes at 1600. (Definition by James Gardner)
NYSE—The New York Stock Exchange is a stock exchange based in New York City, which is considered the largest equities-based exchange in the world based on total market capitalization of its listed securities. Formerly run as a private organization, the NYSE became a public entity in 2005 following the acquisition of electronic trading exchange Archipelago. The parent company of the New York Stock Exchange is now called NYSE Euronext, following a merger with the European exchange in 2007. Also known as the "Big Board", the NYSE relied for many years on floor trading only, using the open outcry system. Today, more than half of all NYSE trades are conducted electronically, although floor traders are still used to set pricing and deal in high volume institutional trading. Bull Market—This is when the stock market as a whole is in a prolonged period of increasing stock prices. Opposite of a bear market.
Broker—A person who buys or sells an investment for you in exchange for a fee (a commission).
Day Trading—The practice of buying and selling within the same trading day, before the close of the markets on that day. Traders that participate in day trading are often called “active traders” or “day traders.”
Dividend—this is a portion of a company’s earnings that is paid to shareholders, or people that own hat company’s stock, on a quarterly or annual basis. Not all company’s do this.
Execution—When an order to buy or sell has been completed. If you put in an order to sell 100 shares, this means that all 100 shares have been sold.
Hedge—This is used to limit your losses. You can do this by taking an offsetting position. For example, if you hold 100 shares of XYZ, you could short the stock or futures positions on the stock.
Initial Public Offering (IPO)—The first sale or offering of a stock by a company to the public, rather than just being owned by private or inside investors.
Margin—A margin account lets a person borrow money (take out a loan essentially) from a broker to purchase an investment. The difference between the amount of the loan, and the price of the securities, is called the margin.
Moving Average—A stock’s average price-per-share during a specific period of time. Some time frames are 50 and 200 day moving averages.
Order—An investor’s bid to buy or sell a certain amount of stock or option contracts. You have to put an order in to buy or sell 100 shares of stock.
Portfolio—A collection of investments owned by an investor. You can have as little as one stock in a portfolio to an infinite amount of stocks.
Quote—Information on a stock’s latest trading price. This is sometimes delayed by 20 minutes unless you are using an actual broker trading platform.
Rally—A rapid increase in the general price level of the market or of the price of a stock.
Sector—A group of stocks that are in the same business. An example would be the “Technology” sector including companies like Apple and Microsoft.
Spread—This is the difference between the bid and the ask prices of a stock, or the amount someone is willing to buy it and someone is willing to sell it.
Stock Symbol—A one-character to three-character, alphabetic root symbol, which represents a publically traded company on a stock exchange. Apple’s stock symbol is AAPL.
Volatility—This refers to the price movements of a stock or the stock market as a whole. Highly volatile stocks are ones with extreme daily up and down movements and wide intraday trading ranges. This is often common with stocks that are thinly traded, or have low trading volumes. This is also common with the stocks that Tim trades.
Volume—The number of shares of stock traded during a particular time period, normally measured in average daily trading volume.
Book Value—The value of a company if all liabilities were subtracted from total assets.
Broker—A person that buys or sells an investment for you in exchange for a fee called commission.
Yield—This usually refers to the measure of the return on an investment that is received from the payment of a dividend. This is determined by dividing the annual dividend amount by the price paid for the stock. If you bought stock XYZ for $40-a-share and it pays a $1.00-per-year dividend, you have a “yield” of 2.5%
Dividends—A portion of a company’s profits that is paid out to shareholders on a quarterly or annual basis. The Board of Directors of the company declares dividends. It is not mandatory to declare dividends on common stock even though the company is making good profits.
Sources: Save Up: Investing for Beginners: Basic Investment Terminology Timothy Sykes: Basic Stock Market Terms
Investopedia Glossary
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