Buying and selling stocks has been around for literally centuries: in 1602, the Dutch East India Company traded it’s stock for the first time in Amsterdam. So yeah, it has a history.
But the market trading game is still a mystery to some. Financial suave is not taught in high school, and some financial books and blogs can be overwhelming for the absolute beginner. So instead of getting lost, get informed with common market terminology and enter the learning curve with an edge.
What are Stocks and Shares?
A stock is ownership of a piece of a company or corporation that represents a portion of that company or corporation. It’s value is proportional to that company’s profits and assets. In other words, if a company is doing well and producing plenty of capital, then their stocks will have a higher value than a corporation that maybe isn’t doing too good.
Stocks are typically bought and sold on stock exchanges to produce capital for the investor.
A share is the proportion a shareholder owns in the company, and represents a unit of stock. A stock is an amount of shares in a company.
Both terms are used interchangeably at times, and the difference between them can be vague and depend on the context in which they are used.
What is a Shareholder/Stockholder?
A shareholder is a person, company, or corporation that owns one or more shares of a company or corporation through the purchase of shares in that company. If you own stocks, you are a shareholder/stockholder. Because shareholders invested their money into a company’s stock, their profits are directly tied with the company’s performance in proportion to the amount of shares they own.
By owning these stocks, or shares, shareholders essentially own a tiny fraction of the company; they can even make decisions about their stocks, if they want to.
Usually, shareholders invest in stocks in order to get a return on investment, and they can do this by selling their stocks when the prices rise, or by any dividends that a stock pays.
What is a Stockbroker?
A stockbroker is a trained individual with a license to buy, sell, and trade stocks for clients—usually shareholders/stockholders—on the stock market. They are typically employed under a brokerage, which is a company that acts as the intermediary between buyers and sellers, or the investor (you) and the stocks. Typically, they take a commission of the profits that their client’s money makes, or a fee for their work. They are fall under the authority of Canadian Securities Administrators in Canada, and the Securities and Exchange Commission (SEC) in the USA, which works to prevent market manipulation. Brokers often provide other services as well, such as providing financial advise and managing your investment portfolio.
What is an Investment Portfolio?
An investment portfolio, or just portfolio, is a collection of financial assets including but not limited to stocks. Your stockbroker manages it and works with you to build a strong and beneficial collection of assets, which can range from only a few to an almost infinite amount. Basically, it is a group of your chosen investments.
What is a Stock Market?
The stock market are the physical or electronic trading grounds where brokers buy and sell stocks under regulation.
What is a Bull and a Bear Market?
A Bull market usually means good news. The market is considered to be a Bull market if stock prices are rising, which shows growth and an increase in the value of the stocks.
A Bear market is opposite: stock prices are dropping, and investors may want to cut loose some of their less profitable stocks, causing prices to fall even further.
What is a Return on Investment?
The Return on Investment, or ROI, is a percentage used to gauge the profitability of an investment. It is found by taking the net profits—profit made by the sale of investments, minus the cost of those investment—and dividing it by the cost of the investment again.
For example: Danny invests $2,000 into BigWig Inc., and sells his shares a year later for $2,500. His ROI for the transaction is found by finding his net profits—$2,500 – $2000 = $500—and dividing it by the cost of the investment—$500 ÷ $2000 = .25 = 25% ROI.
What is a Dividend?
A dividend is a portion of a corporation’s profits that are given to the shareholders. It is a fixed amount per share, and is distributed proportionally to its shareholders. Most stock dividends are paid out quarterly, or four times a year.
What is a Stock Market Index?
The Stock Market Index is a collection of data from shares in a sector or industry that demonstrates those shares’ performance. The index itself does not have any value, but simply reflects the value of the shares.
Conclusion
The stock market can be a complicated topic, and it takes time to be fluent in it. With this basic terminology, you’re ready to tackle the more in-depth information.