Stock Market Terms

Question 1

Arbitrage

Answer 1

Purchasing an asset from one market and selling it to another market where the selling price is higher than what you paid for it, resulting in profit.

Question 2

Averaging Down

Answer 2

Investment Strategy involving buying additional shares of an asset/stock after its price has fallen, resulting in a lower average purchase price

Question 3

Bear market

Answer 3

Market condition in which prices are expected to fall. Typically entails major indexes/stocks decreasing by at least 20% compared to previous highs.

Question 4

Beta

Answer 4

Measure of an assset’s risk in relation to the market.

A stock with a beta of 1.5 means that the stock typically moves 50% more than the market in the same direction.

Higher beta = riskier investment (generally)
If the market rises by 10%, the stock will rise by 15%
If the market falls by 10%, the stock will fall by 15%

Question 5

Bull market

Answer 5

Market Condition in which prices are expected to rise

Question 6

Buyback

Answer 6

When a company repurchases outstanding shares to reduce the number of shares on the market and return profits to their investors, resulting in an increased value of the remaining shares

Question 7

Capitalisation

Answer 7

Total market value of all a company’s outstanding shares.

Calculated by multiplying total number of shares by current share price.

Aka market cap

Question 8

Capital Gains

Answer 8

The profit earned after selling an asset or investment for a higher price than you paid for it.

Question 9

Current Ratio

Answer 9

Measure of a company’s ability to pay ST debt.

Determined by dividing current assets by current liabilities.

Question 10

Debt-to-Equity Ratio

Answer 10

Function of a company’s debt relative to its equity, or the value of its assets minus its liabilities.
Ratio found by dividing total liabilities by total shareholder equity.

Question 11

Dollar-Cost Averaging

Answer 11

Investment strategy in which you invest a fixed amount on a regular basis regardless of the price of the asset.

Question 12

Economic Bubble

Answer 12

A situation where asset prices surge to significantly higher levels than the fundamental value of that asset.

Question 13

Exchange-Traded Funds ETFs

Answer 13

Collection of stocks/bonds combined in a single fund that can be purchased and traded on major stock exchanges.

Similar to mutual funds, they’re a pooled investment fund, meaning a “pool” of money is aggregated from multiple investors.

Question 14

Going Long

Answer 14

Buying stock shares with the expectation that the asset’s price will rise, resulting in a profit

Question 15

Going Short

Answer 15

Selling stock shares with the expectation that the asset’s price will fall.

When going short on an asset, an investor borrows the asset, sells it, and hopefully purchases it later at a lower price if the price does decline - resulting in a profit

Question 16

Growth and Income Funds

Answer 16

Type of mutual fund or ETF that has both a history of capital gains (growth) and income generated from dividends (income).

Growth and Income funds have a two-sided strategy of both LT growht and ST income

Question 17

Growth Stocks

Answer 17

Common stock of a company whose revenues are expected to grow at a significantly higher rate than what’s average for that industry.

Question 18

Head and Shoulders Pattern

Answer 18

Refers to a specific chart formation seen on a technical analysis chart - generally considered to represent impending BEAR market

Appears when a stock price reaches 3 peaks:
- when the price peaks then declines
- rises above that peak and declines again
- rises a third time (but not as high as the second peak) and declines again

The second peak represents the formation’s head and the 1st and 3rd peaks = shoulders.

Question 19

Limit Order

Answer 19

An order to buy or sell a stock at or below a specific price. Limit orders give traders control over how much they pay.

Question 20

Liquidity

Answer 20

Measurement of how quickly and easily a stock can be bought or sold without impacting its price. Cash = v liquid, house = illiquid

Question 21

Margin

Answer 21

aka Buying on Margin
When investors borrow money from a broker to purchase a stock, similar to a loan

Question 22

Market Index

Answer 22

Tracks the performance of a certain collection of stocks, often grouped to represent a certain industry.
Tool for investors to gauge the health of the stock market by comparing current and past stock prices

Question 23

Mutual Funds

Answer 23

Pools of investments from shareholders used to mutually buy securities like stocks, bonds, other assets

Question 24

Order Imbalance

Answer 24

Occurs when orders of one type of stock aren’t offset by opposite orders, resulting in an excess of orders for that specific stock and sometimes volatile price changes

Question 25

Value Stocks

Answer 25

Shares of companies selling at bargain prices that investors expect to rise because the company’s financial fundamentals suggest the shares are actually worth more than the current value.

Question 26

Volume-Weighted Average Price (VWAP)

Answer 26

Measure of the average trading price of a stock/other asset, adjusted for volume.

Calculated by dividing the total dollar value of trading in that asset by the volume of trades.