Stock Trading 101. Flashcards
- *Market Cap**
- *Market Capitalisation**
Market cap—or capitalization—refers to the total value of all a company’s shares of stock.
Knowing a company’s market cap can help you compare the relative size of one company versus another.
Forward Looking
Business term used to identify predictions about future business conditions, typically with publicly-traded corporations.
Also called “discounting mechanism”.
Stock Exchange
A stock exchange is a marketplace where stocks, bonds and other securities are bought and sold.
A stock exchange is the place where buyers and sellers show up and exchange their shares for money, or their money for shares.
Market Order
A market order is an instruction by an investor to a broker to buy or sell** stock shares, bonds, or other assets **at the best available price in the current financial market.
Market orders are the most basic buy and sell trades.
Limit Order
A limit order allows an investor to set a maximum acceptable purchase price amount or a minimum acceptable sales price while placing an order.
The order will be processed only if the asset hits that price.
Limit orders give greater control to the investor / trader.
Bid Price
A bid price is a price for which somebody is willing to buy something, whether it be a security, asset, commodity, service, or contract.
It is colloquially known as a “bid” in many markets and jurisdictions.
Ask Price
The ask is the price a seller is willing to accept for a security, which is often referred to as the offer price.
Along with the price, the ask quote might also stipulate the amount of the security available to be sold at the stated price.
Bid - Ask Spread
The bid-ask spread is essentially the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept.
An individual looking to sell will receive the bid price while one looking to buy will pay the ask price.
Liquid Stock
A liquid stock is a stock that trades enough shares so that the holder of the stock can easily sell when they choose to.
A liquid stock is defined as a stock where you can buy or sell a lot of shares without moving the stock too much. Liquid stocks in the U.S. usually have a bid-ask spread of just a penny or two.
Illiquid Stock
A stock is considered illiquid when the investor cannot easily liquidate the investments held. In other words, with illiquid stocks, buyers or sellers are not readily available.
Limit Order
A limit order in the financial markets is a direction to purchase or sell a stock or other security at a specified price or better.
This stipulation allows traders to better control the prices at which they trade. A limit can be placed on either a buy or a sell order.
Day Order
A day order is a stipulation placed on an order to a broker to execute a trade at a specific price that expires at the end of the trading day if it is not completed.
GTC Order
A Good-Til-Cancelled (GTC) order is an order to buy or sell a stock that lasts until the order is completed or canceled. Brokerage firms typically limit the length of time an investor can leave a GTC order open. This time frame may vary from broker to broker. Investors should contact their brokerage firms to determine what time limit would apply to GTC orders.
ETF
An Exchange-Traded Fund (ETF) is a type of pooled investment security. ETFs track a particular index, sector, commodity, or other assets.
ETFs can be purchased or sold on a stock exchange the same way that a regular stock can. An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities.
Bear Market
A bear market is when a market experiences prolonged price declines.
Indexing
(Passive Investment)
Passive investing is an investment strategy to maximize returns by minimizing buying and selling. Index investing in one common passive investing strategy whereby investors purchase a representative benchmark, such as the S&P 500 index, and hold it over a long time horizon.
P/E Ratio
Price-to-Earnings Ratio is the ratio for valuing a company that measures its current share price relative to its Earnings Per Share (EPS).
P/E Ratio
Formula Calculation
Price to Earning Ratio =
Market Value per share / Earnings per share
Hedge Fund
A hedge fund is a limited partnership of private investors whose money is managed by professional fund managers who use a wide range of strategies, including leveraging or trading of non-traditional assets, to earn above-average investment returns.
Hedge fund investment is often considered a risky alternative investment choice and usually requires a high minimum investment or net worth, often targeting wealthy clients.
(Company) Float
The number of shares of a stock that are actually available for trading.
To calculate the float, you just take the total number of shares outstanding and subtract all closely-held shares (those held by founders, employees, and original investors that are locked up and thus unable to be traded).
Bull Market
A bull market is the condition of a financial market in which prices are rising or are expected to rise.
EPS
Earnings Per Share
A company net profit divided by the number of common shares it has outstanding. It indicates how much money a company makes for each share of its stock and is a metric used for estimating corporate value.
Mutual Funds
A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.
Bond
A bond is a debt security. Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time.
When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation. In return, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal, also known as face value or par value of the bond, when it “matures,” or comes due after a set period of time.
Option
Options are financial contracts that allow the buyer a right, but not an obligation – like in the case of futures or stocks, to buy or sell an asset on a specific date at a particular price called the strike price, which is predetermined at the date when the option is being purchased or sold.
Call Option
Call options are financial contracts that give the option buyer the right but not the obligation to buy a stock, bond, commodity, or other asset or instrument at a specified price within a specific time period. The stock, bond, or commodity is called the underlying asset. A call buyer profits when the underlying asset increases in price.
Trading Sideways
A sideways trend is the horizontal price movement that occurs when the forces of supply and demand are nearly equal. This typically occurs during a period of consolidation before the price continues a prior trend or reverses into a new trend.
A sideways price trend is also commonly known as a “horizontal trend.”
Blue Chip Stock
A blue chip stock is a huge company with an excellent reputation. These are typically large, well-established, and financially sound companies that have operated for many years and that have dependable earnings, often paying dividends to investors.
A blue chip stock typically has a market capitalization in the billions, is generally the market leader or among the top three companies in its sector, and is more often than not a household name. For all of these reasons, blue chip stocks are among the most popular to buy among investors. Some examples of blue chip stocks are IBM Corp., Coca-Cola Co., and Boeing Co.
SPDR
A Standard & Poor’s Depositary Receipt, or SPDR, is a type of exchange traded fund (ETF).
Sometimes called “spiders,” SPY is an ETF based on the S&P 500 Index, and each share represents an ownership interest in the 500 stocks in the S&P 500. Today, there are a number of other SPDR funds available to investors.
