Key Tems of Stock and Investment

Key Terms of Stocks and Investments

There are various terms associated with stocks and investing that you need to understand to get a better understanding of stocks and investments.

  • 1) Zero-coupon Bond: ‘Zero-coupon Bond’ is a bond that doesn’t make interest payments but instead is discounted at the time of sale.
  • 2) Yield to Maturity (YTM): Yield to Maturity (YTM)’ is the annualized return on a bond, if it is held to maturity and all interest payments are reinvested at the same rate
  • 3) Yield: ‘Yield’ is the annual return on investment, including current yield and capital gains yield
  • 4) Shareholders/Stockholders: ‘Shareholders’ or ‘Stockholders’ are investors who own shares of a company.
  • 5) Common Stock: Common Stock is a ‘voting stock’. Hence, any individual who has purchased the common stock of a company is entitled to vote for appointing the officers of the company and it’s Board of Directors. Thus, common stock is the ownership share in publicly held company.
  • 6) Classes of Stock: Classes of Stock’ are the various types of stocks which have specific features, such a different voting or dividend policies. Some companies keep multiple classes of stock with them to cater to various investment demands of their customers.
  • 7) Dividends: ‘Dividends’ is a payment made by the company to shareholders from the profits made by the company. So, dividend is the periodic cash distribution from the company to its shareholders. Companies have different dividend policies, which may change over time.
  • 8) Proxy: ‘Proxy’ is a written agreement in which a shareholder gives another person the right to vote on his behalf.
  • 9) Capital Gain (CG): Capital Gain’ is an increase in the share value of a company. It is the capital gain that lures the investors to buy the shares of a company because investors expect that the price of the shares will increase and they will make money by selling the shares.
  • 10) Insider Information: Insider Information’ is the unpublished information that would give brokers an unfair advantage over the general public in the trade of the company’s stock.
  • 11) Preferred Stock: ‘Preferred Stock’ as the names suggests has a preferential position over common stock. Therefore, during the payout of dividend to share holders, it is first paid to preferred stock owners before common stock holders. Preferred stock is also ownership shares of a company
  • 12) Volatility: ‘Volatility’ is the amount of uncertainty or risk about the amount of changes in a security’s value.
  • 13) Insider Trading: ‘Insider Trading’ is a transaction of buying or selling of stocks that is initiated by people who have prior knowledge of an immediate change in a company’s financial standing that has not yet been made public.
  • 14) Relative Strength Index: ‘Relative Strength Index’ is a technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset
  • 15) Voting Rights: Voting Rights’ means the shareholder’s right to vote on major policy issues. Generally, each share of common stock has one vote. However, some companies have different classes of shares and some classes offer extra voting rights to their shareholders.
  • 16) Volume: ‘Volume’ is the number of shares or contracts traded in a security or an entire market during a given period of time.
  • 17) GDP Growth Rate: ‘GDP Growth Rate’ is the percentage change in “seasonally adjusted” GDP quarter when compared to the previous quarter. So, ‘recession’ means two consecutive quarters with a negative GDP growth.
  • 18) Beta: ‘Beta’ is an important indicator of how susceptible a stock is to movements of the market. Therefore, ‘Beta’ indicates the sensitivity of a stock to movements in the overall market.
  • 19) Gross Domestic Product: ‘Gross Domestic Product’ is the total expenditure for all goods and services produced and consumed within a domestic economy. So, GDP is a measure of the total income of everyone in the domestic economy.
  • 20) Buying on Margin:Buying on Margin’ is using borrowed funds from a broker to make a stock trade.
  • 21) Capital Gains Yield: ‘Capital Gains Yield’ is the component of a stock investor’s total return that is equal to the ratio of the annual change in price to the market price of a stock.
  • 22) Bollinger Band Width: ‘Bollinger Band Width’ is an indicator that shows the volatility of the share.
  • 23) Moving Average Convergence-Divergence (MACD): ‘Moving Average Convergence-Divergence (MACD)’ is a trend-following momentum indicator that shows the relationship between two moving averages of prices. When the two lines cross, it means that there is a change in the trend of the share price.
  • 24) Book Value: ‘Book Value’ is the net worth of the firm according to its balance sheet.
  • 25) Corporation: ‘Corporation’ is a form of business organization that exists as a legal entity separate from its owners, who have limited liability for corporate losses
  • 26) Close Price: ‘Close Price’ is the last price at which a stock is sold at the close of the previous business day.
  • 27) Coupon Payment: ‘Coupon Payment’ is the annual dollar interest payment on a bond, equal to the coupon rate multiplied by the face value, usually paid to investors in two equal instalments.
  • 28) Churning: ‘Churning’ is the excessive trading in a discretionary account
  • 29) Limit Order: ‘Limit Order’ is a request to buy stock at any price up to a specified maximum or to sell stock at any price above a specified minimum
  • 30) Initial Public Offering (IPO): ‘Initial Public Offering (IPO)’ is a company’s first stock offering to the public.
  • 31) Market Capitalization: ‘Market Capitalization’ is the total outstanding value of a company’s stock at current market prices. It is calculated as the current stock price multiplied by the number of shares outstanding.
  • 32) Income Stock: ‘Income Stock’ is the stock that compensates investors primarily through the regular payment of dividends.
  • 33) Sinking Fund: ‘Sinking Fund’ is a fund accumulated to pay an amount due at a specific time in the future, such as when a bond issue comes due
  • 34) Stock Market Index: ‘Stock Market Index’ is an indicator that shows the average price movements of a particular group of stocks representing the market or some market segment.
  • 35) Selling Short: ‘Selling Short’ is a strategy, in which an investor borrows stock from a broker, sells the stock and later buys stock on the market to replace the borrowed stock.
  • 36) Stockbroker: ‘Stockbroker’ is a licensed professional who buys and sells securities on behalf of clients.
  • 37) Securities Exchange: ‘Securities Exchange’ is a physical location at which securities are traded
  • 38) Secondary Market: ‘Secondary Market’ is the market in which previously issued securities are traded between investors.
  • 39) Secured Bond: ‘Secured Bond’ is a bond for which interest and principal payments are backed by assets or future cash flows pledged as collateral
  • 40) Stock Dividend: ‘Stock Dividend’ is a dividend given to shareholders in the form of shares of stock instead of cash.
  • 41) Municipal Bond: ‘Municipal Bond’ is a long-term debt security issued by a state or local government entity.
  • 42) Price-Earnings Ratio (P/E): ‘Price-Earnings Ratio (P/E)’ is the measure of a company’s future earnings potential and is calculated as market price divided by earnings per share.
  • 43) Pre-emptive Right: ‘Pre-emptive Right’ is the right of a stockholder to maintain his proportionate ownership when the company issues additional shares of stock.
  • 44) Market Order: ‘Market Order’ is an offer to buy stock at the        market price.
  • 45) Cyclical Stock: ‘Cyclical Stock’ is stock exhibiting above-average sensitivity to the business cycle.
  • 46) Bid Price: ‘Bid Price’ is the stock price offered by a potential buyer
  • 47) Blue Chip Stock: ‘Blue Chip Stock’ is a stock that is issued by a large, stable, mature company.
  • 48) Ask Price: ‘Ask Price’ is the stock price requested by a potential seller
  • 49) Day Trader: ‘Day Trader’ is an active investor who buys and sells many times during the day in an attempt to make quick profits
  • 50) Debentures: ‘Debentures’ are ‘unsecured bonds’ in the form of a certificate or voucher acknowledging a debt.
  • 51) Dividend Yield: ‘Dividend Yield’ is the component of a stock investor’s total return that is equal to the ratio of annual dividends to the market price of a stock.
  • 52) Defensive Stock: ‘Defensive Stock’ is a stock that is relatively insensitive to the business cycle.
  • 53) Growth Stock: ‘Growth Stock’ is the stock that compensates investors primarily through increase in value of the shares over time.
  • 54) Face Value: Face Value’ is the dollar amount the bondholder will receive at the bond’s maturity date.
  • 55) Earnings per Share (EPS): ‘Earnings per Share (EPS)’ is a measure of company profitability equal to annual earnings divided by the number of shares outstanding.
  • 56) Junk Bonds: ‘Junk Bonds’ are bonds with a high risk of default Limited Liability: ‘Limited Liability’ is a statutory right of corporate shareholders that limits their potential losses to the value of the shares they hold.
  • 57) Indenture: ‘Indenture’ is a legal document that details the rights and obligations of the bondholders and bond issuer
  • 58) Investment-grade Bonds: ‘Investment-grade Bonds’ are medium- and high-grade bonds with low risk of default on interest or principal.
  • 59) Tombstone Ad: ‘Tombstone Ad’ is a formal advertisement of a stock issue in the financial press.
  • 60) Listed Security: ‘Listed Security’ is a security that is approved to be bought or sold on a particular exchange.
  • 61) Prospectus: ‘Prospectus’ is a document that gives potential investors financial information about a stock issue and the issuing company
  • 62) Margin Call: ‘Margin Call’ is a request from a brokerage firm to the holder of a margin account to add money to the account to maintain the required minimum.
  • 63) Primary Market: ‘Primary Market’ is the market in which securities are sold by corporations to the public for the first time.
  • 64) Specialist: ‘Specialist’ is a person responsible for matching a particular stock’s buy and sell orders at a specific securities exchange.
  • 65) Stop Order: ‘Stop Order’ is an order to buy or sell stock holdings when the market price reaches a certain level.
  • 66) Residual Claim: ‘Residual Claim’ is a common shareholder’s right to the firm’s assets and income after all the other claimholders are paid
  • 67) Round Lot: ‘Round Lot’ is a group of 100 shares of stock. Stocks are normally traded in round lots.
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