Stock market glossary

A
Ask price
The ask price is the price at which you can buy a share.

B
Bear market
When the overall market shows a declining trend over a long period of time. A decline of over 20% is usually determines a bear market.

Bid price
The bid price is the price at which you can sell a share.

Blue chip
Blue chip stocks is simply a term used to describe stocks of large companies who have a history of strong earnings growth and dividend payments. These companies have proven continued success and are found at the top of index’s i.e. the companies in FTSE 100 are regarded as blue chip.

Bull market
When the market shows a rising trend over a long period of time. A rise of over 20% usually determines a bull market.

C

D
Day trading

Day trading occurs when traders buy and sell stock in the same day.

Dividend

A dividend is the payment a shareholder receives from the company he/she is currently investing in. The company pays the dividend from the profit it generates throughout its financial year.

Dividend yield

The dividend paid by the company as a percentage of the current stock price.

Doji

A doji is a stock chart pattern that occurs when stock opens and closes at the same price. A doji can often represent a reversal signal.

E
Earnings per share (EPS)

EPS is the profit derivable to shareholders / by the number of shares in issue during the year. The higher the EPS of a company, the better for traders.

Equities

A term used for stocks and shares.

ETF (Exchange traded fund)

ETF’s are essentially stocks that follow the indexes. For example if the S&P 500 went down 1% then its ETF (SPY) would go down around 1%. They normally provide high liquidity for the trader.

Ex-dividend date

You must own a stock of a company before the end of the ex-dividend date to receive the dividend payment. It is the date at which companies form the list of shareholders to pay dividends too.

F
Flat fee

A flat fee is the combined fee brokers charge you for buying and selling a stock.

Fundamental analysis

Fundamental analysis is the study of how healthy a company is by analysing its balance and profit/loss sheet.

Futures

A Futures market handles contracts. Contracts are agreements by two parties to buy or sell something (i.e. stock or commodity) on a specific date in a specific quantity.

G
Gap

A gap is a space in a stock chart caused by the stock opening significantly higher than yesterdays high or significantly lower than yesterdays low. This can often increase the momentum and volatility of the stock. A gap is often caused by a stock not representing the true value of a company and therefore the share price gets significantly adjusted.

H

I
Indicator

An indicator is a mathematical formula that aims to help traders decide whether to buy or sell a stock. There are several indicators, the most famous probably being the MACD and moving averages.

Industry

The stock market is split up into several sections called industries. Each stock is allocated an industry. This helps analysts identify which industries are performing better than others.

J

K

L
Limit order

A limit order is a trade order that sets the maximum price you offer to buy the share at or the minimum price you offer to sell the share at.

Liquidity

In the stock market liquidity links directly to volume and refers to the speed of which you can buy or sell a share. Low volume means poor liquidity and can cause problems when you want to get rid of a stock when the price is dropping and there is nobody on the other end to acquire it.

M
MACD

The MACD stands for moving averages convergence divergence and is one of the most popular indicators. It measures the change in two moving averages, one fast and one slow.

Market capitalisation

Market capitalisation measures the value of a company in terms of issued share capital. The formula for working out a companies market capitalisation is (share price x no of shares in issue).

Market order

A market order is a trade orders that tells the exchange that you want to acquire/release a stock whatever at the current price available. It is often used when a trader is desperate to acquire/release a share.

Moving averages

Is the most common technical analysis indicator and helps the user spot the start and end of trends. Often used by swing and position traders to know when to exit a trade.

N

O

P
Paper trade

Also known as practice trading, paper trading is term used for trading shares without involving real money.

Position trading

Position trading is a style of trading when traders keep shares for between 1-6 months.

Practice accounts

Practice accounts facilitate practice trading. You are either given a simulated starting balance or are able to enter your own starting balance to start practice trading with. Practice accounts are free to open and maintain.

Practice trading

Also known as paper trading, practice trading involves trading shares without using real money. It is essential to be successful at practice trading before trading shares with real money.

Q

R
Range

The difference between the high and the low of a set time period.

Resistance levels

Are levels at which a stock is considered less likely to go any further down or up. Resistance levels are a major part of technical analysis.

S
Screening

Is part of fundamental analysis and is a term used to pick out a traders desired stocks through a series of filters.

Share

Is a single unit of stock.

Stock

Is the capital raised by a company through the issue of shares.

Simulation trading

Also known as practice or paper trading. Involves trading real shares without using real money.

Swing traders

Are traders who are generally in and out of a stock within 2-14 days.

T
Technical analysis

Is an analysis using stock chart patterns and indicators. Is widely used by day and swing traders.

U

V
Volatility

A measurement of change in price over a period of time. Higher volatility means that higher profits or losses can be made.

Volume

How many times the share has been traded in the day. The higher the volume the more liquid the stock is.

W
Wall Street

The street in New York, USA where the New York Stock Exchange is located. One of the most important stock exchanges in the world due to the sheer size of trades that are processed there daily.

X
XD

Stands for ex-dividend. This is shown when a stock has past its ex-dividend date.

Y
Yield

Return on an investment a trader receives from dividends, expressed as a percentage of the cost of the stock.

Z