Understanding Stock Market Terms

The kind of jargon that is used by the stock market professional is often incomprehensible and very daunting to the newcomer in the field. But if you are getting into stock trading, it would a good time for you to start learning so that you don’t get left behind. Understanding stock market terms is very important if you are to succeed at trading, but thankfully, it is not a very difficult task.

One of the most commonly heard terms is about the stock market going ‘bearish’. This basically refers to a time when the market is beginning to slide and is likely to experience a fall. The opposite of this-when the market is doing well and is expected to keep rising-is called a ‘bullish’ market situation. A bullish market is supposed to be enthusiastic, with scope for quick profits, while a bearish market is considered cynical and racked by mutual suspicion. Simple as that! Now that you know the bulls and bears of the stock market, you should know what a ‘writer’ means in stock market jargon. A writer is not the genius artist of the Renaissance mode, but rather one who sells a stock option. Opposite to the writer is the one who buys the options, and he is called, quite simply, the ‘taker’. So, as you can see, it is not such a difficult task understanding stock market terms-a lot of it is just common sense.

Another terms that often comes up in stock market terminology is ‘leverage’. What ‘leverage’ means is basically the ability of a stock to make a large profit by putting in a small sum of money. This is an important term in knowing whether you stock is doing well or not. Another terminology you need to be familiar with is what is called a margin loan. A margin loan allows you to borrow funds so that you can buy more shares. These stocks then form your security and loan ratio. In the margin call, the borrower can ask for extra funds as security in case of a fall in the value of his stocks.

Stocks and shares are what companies put on the market for you to buy. On these stocks, the company gives you a dividend twice a year. Many people also choose to reinvest their dividends in stocks so that it can generate its own money at a pace faster than in the bank.

Stock market terms are multiplying with every passing day and you need to learn something new everyday to stay up to date on new developments. A knowledge of these terms and how they work is essential to succeeding on the stock market. You take some time understanding stock market terms, or you may end up making big mistakes and losing big money. So, in-depth knowledge is an integral part of investing wisely, making gains and getting rich. The rest won’t happen unless you know your way around the market. So, take your time and inform yourself and before long, you will see the dividends of your efforts show up in your bank account

How to Invest in Common Stocks in the Stock Market

The Stock Market

Investing in the stock market is a risky business. However, there are many areas in which one can invest in and either reduce or increase one risk. Usually, the higher the risk, the higher the reward. The areas of investments are options, mutual funds, common stocks, preferred stocks, governments bonds, etc. Government bonds and mutual funds are the list risky. However, the returns on these investment instruments are very low. Returns usually range from about 3% to 5%. The area in which I am specialized in is common stock and the focus of this article is about investing in common stock. Investing in common stock has a higher risk than government bonds and mutual funds. However, if you do your homework properly and thoroughly you will reduce the risk significantly and the rewards are usually great.

Getting Prepared to Invest in the Stock Market

Before you can invest in the stock market, you will need to open an account with a reputable stock brokerage company. It is preferable to use a bank that has a brokerage division. The reason for this is for you to have easy access to your money. That means, you can transfer money from your brokerage account to your bank account instantly. Otherwise, money has to be mailed to you when you do a withdrawal from your brokerage account.

Next, you need to sign up to have online access to your account. After this is done, you will need to have real time access to the stock market. Most reputable brokerage companies will provide this service to you depends on your deposit. The more money you deposit, the more services you will get for free. Note – you do not need the 15 minutes delay real time stock prices. This is no good to you. You need real time stock prices. Once this is set-up, you are ready to rock and roll.

Common Stock Selection

The Next thing you need to do is to find the stocks that you want to invest in. This part is time consuming. What I did for finding my stocks is as follow: at the end of every business day, I looked at the stock market of interest and look at all the best performing stocks for the day. In doing so, you will get a stock code which is necessary for buying, selling, and researching stocks, etc.

The next thing you want to do is to research each stock that you are interested in. You want to look at financial statements and balance sheet for 5 years. Financial statements will tell you if the company is making money or losing money. Also, a financial statement shows you a company sales trend and expense trend. Therefore, you can determine if a company is growing or not. The balance sheet will tell you if the company has money and assets or if it is in debt. If a company’s liabilities is 25% of all its asset, that is a financial sound company. However, if a company’s liabilities is 75% of its assets, that company is in serious financial debt and will be a very risky investment. To be successful in the stock market, you will need to be knowledgeable about financial statements and balance sheets.

Next, you want to research what a company do as a business. Also, you want to know who are the stock’s holders of a company, who is the CEO(chief executive officer), who is on the board of directors, does the company pays dividend, etc. Also, you want to check all the news headlines about a company for about 5 years. After all this is done and you are satisfied with the company, you put this company in your portfolio. You do the same procedure for each company that you are interested in. Note – you have to diversify your portfolio. Invest in companies that are in different kind of businesses. For example, invest in companies that are in various business segments – mining, manufacturing, services, etc. Once you have a number of companies in your portfolio, you are ready to do business.

Monitor Stock Price

The trick of making money in the stock market is to buy low and sell high. Therefore, timing is very important in the stock market. All stocks have a pattern. There are peaks and valleys in every stock. Certain news, will drive stocks prices down or up. These are the waves that you have to look for. Therefore, you buy on the low and sell on the high. To monitor a stock price, you will have to create a stock chart. Your brokerage company may provide this service. look for stock chart. You may also find stocks charts on Yahoo Finance.com, StockCharts.com, and other similar websites. Once you find the service, all you have to do is to enter the stock code. Next, you will have to select a time frame. You can select the maximum time frame and see what the stock have been doing for a number of years. Next you can select 5 years and see what the stock have been doing for the last 5 years. You can play around with the stock chart to get a feel of the stock. At the end, you want to figure out the stock low and high price. Being able to analyze a stock chart is a very important aspect of investing in the stock market. Acquiring this skill and becoming very good at it is very important for making money in the stock market.

Buying and Selling Stocks

Once you have done all your research, and you are satisfied that you are in a good position to buy, you go ahead and buy.That means that you go online and put in a bid to buy a certain amount of stocks at a certain price. Once your bid goes through, you are now a part owner of a company. All the information about your purchase will be available to you online. Note – the brokerage company will charge you a commission for buying and selling stocks for you. Also, the key to making money in the stock market is to buy stocks in large volume. You do not have to buy all the stocks on one purchase. You can buy in segments. That means, if you want to buy 2000 shares, you can purchase 500 shares on 4 different occasions – buying leverage.

Now you have bought some stocks, you have to keep on monitoring the stock price. Sometimes, the stock price may drop further from where you purchase. Do not panic, as long as you bought in the low range, you will be good. It is very difficult to buy at the exact lowest price and sell at the exact highest price because you will never know for sure what that will be. Stocks have a tendency to hit new lows and new highs. You will have to trust your instincts based on whatever is going on in the news.

The good thing about common stocks is that you can sell them at anytime as long as the price is right to you. So therefore, if your stock hit it lows and it highs on the same day. You can purchase and sell the stock on the same day. I have done that on numerous occasions as a Day Trader. However, this does not happen all the time. Sometimes, you may have to hold the stock for a while before you can sell. The key to the stock market is that you have to monitor the business news all the time. Certain news, will cause the stock prices to either drop or rise and you have to be ready to act. Now, you have the basic knowledge to start investing in the stock market.

Stock Market Sectors and Industries

Are they important?

Yes. You want to have a way of looking at all the stocks within the markets divided into categories by industries and then further into sectors. This allows you to see where the action is. If there is an outstanding stock within an industry it can help you in a number of ways. You may find a second leading stock in the same industry if the reason for the move is industry relevant.

For example, when the first steel company made a deal to supply China some time back you may have missed the first but it could have given you a heads up on spotting the second.

Another benefit to looking at industries is finding supporting companies. So when the steel company was roaring, who was shipping it to China? You could look into the shipping sector and target who was going to lead that group to new heights.

How do I judge the health of an industry? It should be evident from what’s going on within it. Looking at the top 5 stocks in any industry or sector is going to show you if that industry is profitable, making good sales and growing it’s market.

Should I buy a great stock in a poor industry? Often a stock cannot move in isolation from it’s industry no matter how good it is. Again think of human involvement here. You may think of a bank that’s doing great guns at the moment but the weight upon that industry is just too much. No matter how good the individual bank may be it’s not going to soar into being a lone leader whilst the industry is suffering. There are safer places to put your money.

If there are several great looking stocks in an industry, should I buy them all? No. Don’t just piggy back onto similar stocks. In any sector there are not likely to be more than 1 or 2 truly great leaders. Best to focus on finding those leaders rather than just picking up the left overs. They may get taken along for a short ride but you’ll be missing the great gains a leader will give you.

Hope you found it informative reading about stock market sectors and industries.