While the stock market can be a very lucrative place to create wealth, venturing into it without being aware of its terminology can be extremely daunting. At Moneyplantfx, we believe that an informed investor is an empowered investor, so before you embark on your investment journey, we thought it would be helpful to compile a list of 10 stock trading concepts that every new investor should be aware of.
It’s important to understand the differences in the two major types of markets:
Primary Market: This is where shares are sold to the public for the first time by a company; this is normally done through an IPO (Initial Public Offering).
Secondary Market: This is the regular stock market where shares are exchanged between investors. After a stock goes public, you can buy and sell that stock in the market as a new investment through the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE); it is also the auction-based marketplace as traded on the market.
Every market cycle is classified as either:
Bull Market: Where stock prices are rising along with optimism and strong investor confidence.
Bear Market: A period where stock prices are declining from the high point of market optimism, where pessimism dominates and a slowdown occurs as the investors take on a negative sentiment with the economy or market movements.
A broker is your licensed agent who handles your buy and sell requests in the thousands of stock items on the market. At Moneyplantfx, we help traders find reliable brokers to improve their investing experience.
Opening Price: The price of a stock when the stock market opens.
Closing Price: The price of the stock when the trading session is over.
These figures are used to help reflect the changes that went on in the stock market over an individual day and a particular stock.
A dividend is the payment of profit that is paid to the company shareholders. This illustrates the performance of the company’s finances and represents a supplementary income to the investor.
Market capitalization or market cap, is how the total worth of a company (by the market) is measured. It is calculated by multiplying the current price of the share by the total outstanding shares issued. Companies are usually described as large, mid or small depending on their market capitalization.
There are two methods of trading:
Intraday Trading: Buying and selling stock on the same trading day. In intraday trading, traders must make quick decisions in real time, and track market changes as quickly as possible.
Delivery Trading: Holding stocks longer than a single trading day-possibly for days, months, or years. Delivery trading would be considered a long-term investment strategy, based on a company value increase.
Bid Price: The highest amount that a buyer is willing to pay.
Ask Price: The lowest amount at which a seller is willing to sell.
The bid and ask price will determine trades.
Spread is the amount between the bid and ask price. Generally, if there is a spread, this can indicate liquidity. A small spread usually indicates the equity is liquid and can be bought or sold quickly.
Yield refers to the amount of income from an investment, over a certain time frame, usually expressed as a percentage. For stocks, yield is usually stated based on dividends received in relation to the stock price.
At Moneyplantfx, our goal is to support new investors with the necessary foundation of market knowledge to help them pursue their financial goals. It is important to understand these fundamental concepts as either a potential intraday trader or a long-term portfolio builder.
Are you ready to start your trading journey?
Stay informed and empowered and trade smart, with Moneyplantfx.