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Basic terms you need to know in Stock Market

Are you learning about stock market? Before diving into investing in stock market, it is important that you learn and understand some key investment terminologies. Below is the list of some general investing terms. Brief definition of each term will help you to understand and become familiar with them.

What is Stock Market?

The stock market refers to the collection of markets and exchanges where the regular activities of buying, selling and issuance of shares of publicly held companies take place.

Bear and Bull Market

Bear Market is when most stock prices are falling our several months. This is the opposite of a bull market. Bull Market is when the stock market as a whole is in a prolonged period of increasing stock prices.

Blue Chip

Blue Chip refers to company that has a history of solid earnings, regular and increasing dividends, and an impeccable balance sheet. They offer a stable record of significant dividend payments and have a reputation of sound fiscal management.

Broker

A person that buys or sells an investment for you in exchange for a fee called commission.

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. It is not mandatory to declare dividends on common stock even though the company is making good profits.

Exchange

It is a place in which different investments are traded. For example, New York Stock Exchange in USA, Bombay Stock Exchange in India, Nepal Stock Exchange in Nepal, etc.

Index

A stock market index measures the change in the stock prices of the index’s components. It is a benchmark that is used as a reference marker for traders and portfolio managers.

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. Growing companies that need capital will frequently use IPOs to raise money, while more established firms may use an IPO to allow the owners to exit some or all their ownership by selling shares to the public.

Follow On Public Offer (FPO)

A follow-on public offer (FPO) is the issuance of shares to investors by a public company that is currently listed on a stock market exchange. An FPO is a stock issue of additional shares made by a company that is already publicly listed and has gone through the IPO process. FPOs are popular methods for companies to raise additional equity capital in capital markets through an issue of stock.

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.

Book Value

An asset’s book value is equal to its carrying value on the balance sheet, and companies calculate it netting the asset against its accumulated depreciation. Book value is also the net asset value of a company calculated as total assets minus intangible assets (patents, goodwill) and liabilities.

Earnings Per Share (EPS)

Earnings per share (EPS) is the portion of a company’s profit allocated to each share of common stock. Earnings per share serve as an indicator of a company’s profitability.

Price-to-Earnings Ratio (P/E Ratio)

The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.

Price-to-Book Ratio (P/B Ratio)

Companies use the price-to-book ratio to compare a firm’s market to book value by dividing price per share by book value per share (BVPS). It is also sometimes known as a Market-to-Book ratio.

Net Worth

Net worth is the amount by which assets exceed liabilities. Another way to say this is, it’s the value of everything you own, minus all your debts.Net worth is a concept that can be applied to both individuals and businesses, as a measure of how much they are really worth. Sometime, net worth is also called book value or shareholders’ equity.

Portfolio Management

Portfolio management is the art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance. Portfolio management is all about determining strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and many other trade-offs encountered in the attempt to maximize return at a given appetite for risk.

Capitalization

Capitalization, in accounting, is when the costs to acquire an asset are expensed over the life of that asset rather than in the period it was incurred. In finance, capitalization is the sum of a corporation’s stock, long-term debt, and retained earnings. Capitalization also refers to the number of outstanding shares multiplied by share price.

Promoter

A promoter is an individual or organization that helps raise money for some type of investment activity. Promoters may raise money for a company by offering investment vehicles other than traditional stocks and bonds, such as limited partnerships and direct investment activities.

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