Some of the links on this page may be affiliate links. If you click on these and buy a product, we will earn a commission at no additional cost to you. Additionally, as an Amazon Associate, I earn from qualifying purchases.Thank you! In investing, it’s important to be able to compare the same time period… [Read More]
Stock Market Terms, Investment Terminology and Definitions
Welcome to the comprehensive list of stock market terms and their definitions, designed for investors at all levels.
In this article we will go over the basic stock market terms. Stock 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. Over time, the increased usage of the stocks and stock exchanges created a unique vocabulary. Today, to understand the workings of the financial markets, it is important that we have a good knowledge of these basic stock market terms.
Exchange, Market and Trading
Over the decades many different venues for trading shares have sprung up in the United States and across the world. Some of these market places are physical while many of these are electronic. These organized make shares trading more liquid, help in price discovery, allow for data to track the general health of the economy. Along with these, regulatory agencies have also be created to monitor these stock market activities for fairness and regularity. Today, when you buy or sell shares on any of these platforms, you can rest assure that you are receiving a fair price and you are unlikely to be taken advantage of.
- 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.
Learn how to invest in the stock market
Basic Stock Market Terms
Here’s a glossary of stock market terms, suitable for beginners just learning how to pick stocks. Additionally, consider practicing your investing skills with our list of stock market game for kids. Younger students can take a look at the money games for kids
How to buy stocks without a broker?
| A | B | C | D | E |
| F
Fund - large buyable portfolios of stock
Fundamental Analysis |
G | H | I
Insider - company executives with non-public information about the company
Interest Coverage Inventory Turnover Investment Portfolio |
J |
| K | L | M | N Net Current Asset Value |
O
Order - instructions to buy or sell a security |
| P | Q | R
Ratings - analyst opinion on a stock, expressed as Buy, Sell or Hold
Recovery - improvement in prices after a decline
|
S
Shares - pieces of stock
Stock Market - collection of stock exchanges
Stock Warrants |
T Technical AnalysisTicker - stock symbol for use by tradersTrading - buying and selling of securities |
| U Undervalued Stocks |
V | W | X, Y Yearlings |
Z |
What are the 11 Sectors of the Stock Market?
The stock market is further divided into 11 sectors in the US. This is done by sorting the companies by their primary business activity. This method of sorting the companies in 11 sectors is also referred to as Global Industry Classification Standard (or GICS). You may also know these as S&P Sectors. The sector classification helps portfolio managers manage the diversification in their portfolios. It also allows investors to focus on a specific sector if they choos.
The following are the 11 sectors of the stock market:
- Information Technology
- Health Care
- Financials
- Consumer Discretionary
- Consumer Staples
- Communication Services
- Industrials
- Energy
- Utilities
- Real Estate, and,
- Materials
Index of the Market and Company Shares
You may have come across various market and sector indexes (or indices). An index is a pre-determined list of stocks, generally focused an a specific segment of the market. The segments can be by sectors, or by the size of the company market value. Then there are some indexes that focus on the total stock market in specified geographic area. One of the most common example of an index is the S&P 500. This index is maintained by Standard & Poor and tracks the top 500 stocks by market capitalization in the United States. Dow Jones Index is another common index. Majority of the trading in the US stock market is conducted through indexes and funds that track these indexes.
Did this get you interested in learning more about investing in the stocks? Read our extensive guide on how to invest in stocks for practical investment concepts to help you buy your first stock
View articles in other categories: Dividend Stocks, Large Cap Stocks, Mid Cap Stocks, small cap stocks, Macro-economic, Value Investing Tips, Investing Questions, Business, Personal Finance, Investment Guide
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Stockholders’ Equity or Shareholders’ Equity and Its Value for Investors
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What is Working Capital?
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What is Net Current Asset Value or NCAV?
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What are Undervalued Stocks? How to Find Undervalued Stocks?
Undervalued stocks are the stocks that can be purchased at prices that are below the intrinsic value of the stock, as calculated by the investor in question. A stock that is deemed undervalued by one investor may not be considered undervalued by another investor.
What is the Black Scholes Model?
Black-Scholes model is used to estimate the fair value of European call options based on the probabilistic distribution of future prices and volatility. It takes the the risk free interest rate, the volatility of the stock, the strike price of the option, time to expiry and the current stock price into account.
What is “Ex Cash” Price-to-Earnings (P/E) Ratio?
To calculate the p/e (ex cash), subtract Cash from the market value before dividing by earnings.
So, P/E (ex cash) = (Market Value – Cash and cash equivalents)/Net Income
There is a very good reason why this is done.
What is EBIT, or Earnings Before Interest and Taxes?
As investors, we all know that the earnings of a company are of paramount importance to the growth of the business as well as creation and growth of shareholder wealth. Question then arises on how the earnings should be measured. In US, the Generally Accepted Accounting Procedures (GAAP), specifies the way a company can recognize its revenue and expense. Like most investors, you are undoubtedly familiar with the terms “earnings”, “net income”, and, “earnings per share”.
Then there is EBIT.
What is Enterprise Value?
Enterprise value can be thought of as a private market valuation for the company. When a buyer purchases a company in the private market, he has to pay for the company equity (including common stock, preferred shares, minority interest, etc – learn about common stock vs preferred stock), he has to pay off all the debt, but in return the buyer gets the cash the company has in its bank accounts and other cash equivalents in form of securities and other liquid assets.
What is Quick Ratio or Acid Test Ratio?
Quick ratio measures the liquidity of the company. It is similar to current ratio but a bit more restrictive in what it considers to be liquid. Inventory is part of the current asset used for current ratio. However, it is explicitly excluded from the calculation of quick ratio.
What is Inventory Turnover?
What is Inventory Turnover? Inventory turnover is used to indicate how many times a company sells its complete inventory in any given period of time. This measures the briskness of the business.
What is EV/EBIT or Enterprise Value/EBIT Ratio? How to Use?
Enterprise Value/EBIT or EV/EBIT is a similar measure as P/E ratio (P E ratio definition). Instead of the Market Value, we use the Enterprise Value and instead of the Earnings in the denominator, we use EBIT.
What are Master Limited Partnerships (MLPs)?
The investment world is filled with trading opportunities outside of your traditional stocks and bonds. You may not have heard about them as much, but each one offers their own set of benefits and risks. Take, for example, a master limited partnership.
A master limited partnership (MLP) is a publicly traded partnership that shares elements of a limited partnership and a corporation.
Dividend Discount Model: What is Dividend Discount Model (DDM)?
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Modern Portfolio Theory Explained
With a constantly changing market, assessing the potential risks and rewards of and investment can be tricky. As you build your portfolio, you may be in search of the ideal investment that helps bring in a maximized return while minimizing risks.
This type of investment is almost impossible find, but that hasn’t stopped people from developing strategies and theories to achieve the perfect investment. One of the most popular by far, is the Modern Portfolio Theory (MPT).
What is CAPM? What does CAPM Tell Us?
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