Stock Market Terminology and Definitions for Beginners

Stock Market TermsStock market trading goes back about 200 years. In the US, the colonial government used to sell bonds in order to finance the war. The government promised to pay the buyers of bonds at a later date. It was during this time that private banks started issuing stocks of companies to raise money. This was also a time when the rich had tremendous opportunities to scale up their wealth.

In 1792, twenty four big merchants joined hands to create the New York Stock Exchange (NYSE). The daily meeting in Wall Street for trading bonds and stocks was also initiated during this time. In the early half of the 19th century, the US witnessed rapid economic growth. The companies understood that investors were eager to have partial ownership so they offered stocks. By the turn of the 20th century, stocks worth millions of dollars were traded and the stock markets began to grow globally. Today the stock exchanges such as NYSE, London Stock Exchange, and the Tokyo Stock Exchange have a major impact on global economy and commerce.

History has shown that the issuing of stocks helped companies to expand exponentially. The economy where the stock market is on the rise can be considered an upcoming economy. Rising share prices tend to be associated with the increased business investments. Share prices also actively influence the wealth of households and their consumption. Exchanges act as the clearinghouse for every transaction which means that they collect and deliver the shares, guaranteeing payment to the sellers.

  • NYSE: A history of the New York Stock Exchange.
  • SEC: The official website of the US Securities and Exchange Commission.
  • NASDAQ: The largest electronic-based stock exchange in the United States.
  • CBOE: The largest options exchange in the world.

Here’s a glossary of stock market terms, suitable for beginners just learning how to pick stocks.

After-hours Deal: The stock market usually closes at 4:00pm. After this scheduled time, deals can also be made but the transaction is dated the next day, known as an after-hours deal.

Annual Report: An audit report to shareholders produced yearly. This report of stock market news is produced by all publicly quoted companies.

Balance Sheet: The financial statement which shows the liabilities and assets of a company.

Bargain: Regarding sale or purchase in the stock market, bargain is a common word.

Bearer Stocks: This is the stock that is unregistered with the owner’s name.

Bed and Breakfast Deal: This refers to the sale of share and repurchase on another day. It’s done to set up profit or loss for the purpose of tax.

Bid Price: This term indicates the sale price of stocks or shares.

Blue Chip: These are shares of big and reputed companies.

Book Value: The net worth of the company as listed on the balance sheet.

Bull: A person who considers the share price of the stock exchange to be on the rise.

Call: An extra installment due on shares.

Capital: The amount of money used for setting up a new business.

Cash Settlement: In the stock exchange, there are certain deals like Gilts which are rendered for cash and not for account settlement. They are settled the next day of the deal.

Contract Note: This is a printed confirmation letter from any broker indicating a bargain which is carried out.

Coupon: Refers to interest amount payable only for fixed interest stock.

Cum Dividend: These are shares that are sold, allowing the buyer to receive the following dividend.

Dawn Raid: Refers to the buying of a huge amount of shares in the morning at the opening of stock market.

Dealing: This means the purchase and sale of shares.

Debenture: The stock that a company issues which are backed by assets.

Depreciation: The amount of money set aside for replacement of the assets.

Dividend: The part of the company’s profits which is usually distributed to company’s shareholders, normally on regular basis.

Equities: These are the ordinary shares. They are different from debenture and also from loan stock.

Ex-dividend: The share which is bought without any right for receiving the next dividend. This is usually retained by sellers.

Final Dividend: This is the dividend which is declared according to the company’s annual results.

Financial Ratio: Various ratios that indicate the health of a business and value in the stock.

Futures: Contracts that allow any holder the legal right to buy or sell Indexes and Commodities in the future at a price set today.

Gross: The interest paid without deducting of tax.

Hedge: This means to insure the risk.

Initial Public Offering: The issue of new shares by a previously private company as it becomes a public company.

Limit Order: This is an order to any stockbroker specifying any fixed price limit.

Liquidation: Converting the prevailing assets to cash.

Loan Stock: The stock that bears a fixed interest rate. It’s different from debenture stock because it’s not required to be secured by any asset.

Options: The term means the right to purchase (call option) and sell (put option) a particular share at a particular price within a particular period.

Ordinary Share: This is a share where the dividends usually vary in the amount.

Over the Counter Market (OTC): Refers to a marketplace outside the main stock market.

Portfolio: A selection of shares usually held by a person or fund. Also known as investment portfolio or a stock portfolio

Proxy: Anybody who votes on another person’s behalf if the person is unable to attend a shareholders’ meeting.

Stock: Also referred to share or equity, stock is the basic ownership unit of a company.

Stock Warrants: An instrument that conveys the right to buy additional stock within a fixed time period at a set price. Warrants differ from stock options in the way they are exercised.

Value Stocks: Stocks that appear to be trading at a discount to their intrinsic worth, as measured by various different valuation metrics.

Yearlings: Bonds issued for twelve-month term, mainly by local authorities.

Yield: The gross dividend presented as the percentage of the share price.

To find many more terms and definitions related to the stock market, go here. Read our extensive guide on how to invest in stocks for practical investment concepts to help you buy your first stock