STOCK MARKET 
Terms of Glossary

Agent

A securities firm is classified as an agent when it acts on behalf of its clients as buyer or seller of a security. The agent does not own the security at any time during the transaction.

All-or-None Order

An order that must be filled completely or the trade will not take place.

American-Style Options

Options that can be exercised any time during their lifetime. These are also known as open options.

Annual Report

An annual report is a report prepared by a company that’s intended to impress shareholders. It contains tons of information about the company, from its cash flow to its management strategy. When you read an annual report, you’re judging the company’s solvency and financial situation. 

Arbitrage

Arbitrage refers to buying and selling the same security on different markets and at different price points. For instance, if stock XYZ is trading at $10 on one market and $10.50 on another, the trader could buy X shares for $10 and sell them for $10.50 on the other market, pocketing the difference.

The simultaneous purchase of a security on one stock market and the sale of the same security on another stock market at prices which yield a profit.

Ask or Offer

The lowest price at which someone is willing to sell the security. When combined with the bid price information, it forms the basis of a stock quote.

Ask Size

The aggregate size in board lots of the most recent ask to sell a particular security.

Assets

Everything a company or person owns, including money, securities, equipment and real estate. Assets include everything that is owed to the company or person. Assets are listed on a company’s balance sheet or an individual’s net worth statement.

Assignment

The notification to the seller of an option by the clearing corporation that the buyer of the option is enforcing the terms of the option’s contract.

At-the-Money

When the price of the underlying equity, index or commodity equals the strike price of the option.

Averaging Down

Buying more of a security at a price that is lower than the price paid for the initial investment. The aim of averaging down is to reduce the average cost per unit of the investment.

When an investor buys more of a stock as the price goes down. This makes it so your average purchase price decreases. You might use this strategy if you believe that the general consensus about a company is wrong, so you expect the stock price to rebound later.

Bear Market

Gold cast statuette depicting a stylized bull and a bear in dramatic contrasting light representing a financial market trends created by Inked Pixels – Shutterstock.com
Trading talk for the stock market being in a downward trend, or a period of falling stock prices. This is the opposite of a bull market. If a stock price plummets, it’s very bearish.

Beta

A measurement of the relationship between the price of a stock and the movement of the whole market. If stock XYZ has a beta of 1.5, that means that for every 1 point move in the market, stock XYZ moves 1.5 points, and vice versa.

Blue Chip Stocks

The stocks behind large, industry-leading companies. Blue chip stocks 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.

Bourse

This stock market term is a little murky. Technically, it’s just another name for the stock market and originates from a house in which wealthy men gathered to trade shares. However, when you hear it in today’s conversations about the stock market, it usually either refers to the Paris stock exchange or to a non-U.S. stock exchange.

Bid

The bid is the amount of money a trader is willing to pay per share for a given stock. It’s balanced against the ask price, which is what a seller wants per share of that same stock, and the spread is the difference between those two prices.

The highest price a buyer is willing to pay for a stock. When combined with the ask price information, it forms the basis of a stock quote.

Bid Size

The aggregate size in board lots of the most recent bid to buy a particular security.

Black-Scholes Model

A mathematical model used to calculate the theoretical price of an option.

Blue Chip Stocks

Stocks of leading and nationally known companies that offer a record of continuous dividend payments and other strong investment qualities.

Bonds

Promissory notes issued by a corporation or government to its lenders, usually with a specified amount of interest for a specified length of time.

Book

An electronic record of all pending buy and sell orders for a particular stock.

Booked Orders

Orders that do not trade immediately upon entry. These orders are also known as outstanding orders.

Bought-Deal Underwriting

A type of underwriting where the brokerage firm acts as principal. The brokerage firm risks its own capital to purchase all of the securities to be issued. If the price of the securities decreases before the brokerage firm has had a chance to resell the securities to its clients, the firm absorbs the loss.

Broker

A person who buys or sells an investment for you in exchange for a fee (a commission).

Broker or Brokerage Firm

A securities firm or a registered investment advisor affiliated with a firm. Brokers are the link between investors and the stock market. When acting as a broker for the purchase or sale of listed stock, the investment advisor does not own the securities but acts as an agent for the buyer and seller and charges a commission for these services.

Bull Market

A market in which stock prices are rising. 

When the stock market as a whole is in a prolonged period of increasing stock prices. It’s the opposite of a bear market. A single stock can be bullish or bearish too, as can a sector, which I’ll describe later on. 

Cash Dividend / Distribution

A dividend/distribution that is paid in cash.

Cash Settlement

Settlement of an option contract not by delivery of the underlying shares, but by a cash payment of the difference between the strike or exercise price and the underlying settlement price.

Certificate

The physical document that shows ownership of a bond, stock or other security.

Clearing Day

Any business day on which the clearing corporation is open to effect trade clearing and settlement.

Clearing Number

The trading number of the clearing Participating Organization or Member.

Capital Gains Distribution

A taxable distribution out of taxable gains realized by the issuer. It is generally paid to security holders of trusts, partnerships, and funds. Like all distributions, it may be paid in securities or cash. The amount, payable date, and record date are established by the issuer. The exchange that the issue is listed on sets the ex-dividend/distribution (ex-d) date for entitlement.

Capital Stock

All shares representing ownership of a company, including preferred and common shares.

Cash Dividend / Distribution

A dividend/distribution that is paid in cash.

Cash Settlement

Settlement of an option contract not by delivery of the underlying shares, but by a cash payment of the difference between the strike or exercise price and the underlying settlement price.

Certificate

The physical document that shows ownership of a bond, stock or other security.

Clearing Day

Any business day on which the clearing corporation is open to effect trade clearing and settlement.

Clearing Number

The trading number of the clearing Participating Organization or Member.

Client Order

An order from a retail customer of a Participating Organization.

Closing Transaction

An order to close out an existing open futures or options contract.

Commission

The fee charged by an investment advisor or broker for buying or selling securities as an agent on behalf of a client.

Commodities

Products used for commerce that are traded on a separate, authorized commodities exchange. Commodities include agricultural products and natural resources such as timber, oil and metals. Commodities are the basis for futures contracts traded on these exchanges.

Common Shares or Common Stock

Securities that represent part ownership in a company and generally carry voting privileges. Common shareholders may be paid dividends, but only after preferred shareholders are paid. Common shareholders are last in line after creditors, debt holders and preferred shareholders to claim any of a company’s assets in the event of liquidation.

Complete Fill

When an order trades all of its specified volume.

Continuous Disclosure

A company’s ongoing obligation to inform the public of significant corporate events, both favourable and unfavourable.

Convertible Security

A security of an issuer (for example – bonds, debentures, or preferred shares) that may be converted into other securities of that issuer, in accordance with the terms of the conversion feature. The conversion usually occurs at the option of the holder of the securities, but it may occur at the option of the issuer.

Corporation or Company

A form of business organization created under provincial or federal laws that has a legal identity separate from its owners. The shareholders are the corporation’s owners and are liable for the debts of the corporation only up to the amount of their investment. This is known as limited liability.  

Close

The NYSE and Nasdaq close at 4 p.m., with after-hours trading continuing until 8 p.m. The close simply refers to the time at which a stock exchange closes to trading.

Day Trading

The practice of buying and selling within the same trading day, before the close of the markets on that day, is called day trading. This is my primary trading strategy, although I have a long-term portfolio, as well. Traders who participate in day trading are often called “active traders” or “day traders.”

Dividend

A portion of a company’s earnings that is paid to shareholders, or people that own that company’s stock, on a quarterly or annual basis. Not all companies pay dividends. For instance, if you trade penny stocks, you’re likely not after dividends.

Exchange Stock Market Terms

A place in which different investments are traded. The most well-known exchanges in the United States are the New York Stock Exchange (NYSE) and the Nasdaq.

Execution

When an order to buy or sell has been completed, the trader has executed the transaction. If you put in an order to sell 100 shares, this means that all 100 shares have been sold.

Haircut

In its most simplest stock market terms, a haircut is an extremely thin spread between the bid and ask prices of a given stock. It can also refer to a situation in which a stock price gets reduced by a specific percentage for margin trades or other purposes.

High

A high refers to a market milestone in which a stock or index reaches a greater price point than previously. Record highs can signal that a stock or index has never reached the current price point, but there are also time-constrained highs, such as 30-day highs.

Index

A benchmark that is used as a reference marker for traders and portfolio managers. A 10 percent return may sound good, but if the market index returned 12 percent, 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.

Initial Public Offering (IPO)

An IPO is the first sale or offering of a stock by a company to the public. It happens when a company decides to go public rather than remain solely owned by private or inside investors. The Securities Exchange Commission (SEC) has strict rules that companies must follow before issuing an IPO.

Leverage

I’m not a fan of leverage, but it’s good for you to know this stock market term. When you use leverage, you borrow shares in a stock from your broker with the goal of increasing your profit. If you borrow shares and sell them all at a higher price point, you return the shares and keep the difference. It’s a dangerous game that I urge you to avoid playing.

Low

Low is the opposite of high. It represents a lower price point for a stock or index.

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.

Trading on margin can be dangerous because, if you’re wrong about the direction in which the stock will go, you can lose significant cash. You must often maintain a minimum balance in a margin account.

Moving Average

A stock’s average price-per-share during a specific period of time is called its moving average. Some common time frames to study in terms of a stock’s moving average include 50- and 200-day moving averages.

Open

In the United States, the stock market opens at 9:30 a.m. Eastern time every day. It’s based on the trading hours of the Nasdaq and NYSE. Pre-market trading hours begin at 4:30 a.m. Eastern, but most traders don’t begin paying attention until about 8 a.m. Essentially, open refers to the time at which people can begin trading on a particular exchange.

Order

An investor’s bid to buy or sell a certain amount of stock or option contracts constitutes an order. You have to put an order in to buy or sell 100 shares of stock, for instance.

Pink Sheet Stocks

The term “pink sheets” refers most commonly to penny stocks, which are traded at $5 per share or less. They’re also called over-the-counter stocks because that’s how they are traded. You won’t find them on the Nasdaq or NYSE, or any other major exchange, and they’re often smaller companies.

Portfolio

A collection of investments owned by an investor makes up his or her portfolio. You can have as few as one stock in a portfolio, but you can also own an infinite amount of stocks or other securities.

Quote

Information on a stock’s latest trading price tells you its quote. This is sometimes delayed by 20 minutes unless you’re 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 is known as a rally. Depending on the overall environment, it might be called a bull rally or a bear rally. In a bear market, upward trends of as little as 10 percent can qualify as a rally.

Sector

A group of stocks that are in the same industry belong to the same sector. An example would be the technology sector, which includes companies like Apple and Microsoft. Some traders prefer to trade in a specific sector, such as energy, because they know the industry well and can better predict stock price fluctuations.

Share Market

Any market in which shares of a particular company are bought and sold. The stock market is an example — and probably the most significant example — of a share market.

Short Selling

When you short-sell a stock, you borrow shares from someone else with the promise to return them at a point down the road. You then sell the stock for a profit. It’s a way to take advantage of a stock that you believe will decrease in price. After you sell short, you can buy back the shares at the lower price point and take the difference in price as your profit.

There are people use short selling on a regular basis. It’s often a smart move in a volatile market if you see patterns that indicate a sharp downward turn for a stock.

Spread

This is the difference between the bid and the ask prices of a stock, or the amount for which someone is willing to buy it and the amount for which someone is willing to sell it. For instance, if a trader is willing to trade XYZ stock for $10 and a buyer is willing to pay $9 for it, the spread is $1.

Stock Symbol

A stock symbol is a one- to four-character alphabetic root symbol that represents a publicly traded company on a stock exchange. Apple’s stock symbol is AAPL, while Walmart’s is WMT.

Volatility

The price movements of a stock or the stock market as a whole. Highly volatile stocks are those 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.

There are people who are a big fan of high-volatility stocks because I can make a big profit off spikes or dips, depending on how I’m trading, in a short period of time. High volatility often makes trading more exciting, but it’s also risky if you’re inexperienced.

Volume

The number of shares of stock traded during a particular time period, normally measured in average daily trading volume. Volume can also mean the number of shares you purchase of a given stock. For instance, buying 2,000 shares of a company is a higher-volume purchase than buying 20 shares.

Yield

Often 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 per share and it pays a $1.00-per-year dividend, you have a “yield” of 2.5 percent.

The Bottom Line

Knowing your stock market terms will make you a better trader. It takes time to grasp the intricacies of securities trading, but once you do, the stock market terms above will become part of your daily vocabulary. 

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