Investing in the stock market involves a lot of unfamiliar terms. Here are a few key terms to understand to be a well informed investor:
Asset: Items of ownership that may be sold for cash, including stock securities, inventories, commodities or real estate.
Bear Market: Learn more about bear markets on our blog.
Bull Market: Learn more about bull markets on our blog.
Board of Directors: The board of directors is an elected group of individuals with the role of representing stockholders in company decisions.
Bonds: Bonds represent loans that an investor gives to a corporation or government. They have maturity dates at which point the amount must be paid back in full, typically with a fixed interest rate. Bonds are tradable assets.
Brokerage Account: A brokerage account is an arrangement between an investor and a licensed brokerage firm, who places trades on behalf of the investor. The brokerage executes the investments, and the assets belong to the investor. In order to earn free stock rewards, Bumped users open a brokerage account with Bumped Financial LLC.
Brokerage Statement: Learn how to read a brokerage statement here.
Capital Gain/Loss: A capital gain/loss is the difference between what you buy a stock for and sell it for. For example, if you bought $100 of stock today and then sold it for $150 in ten years, your capital gain would be $50 ($150-$100) since you made $50 on your investment. Likewise, if you purchase a stock for $100 and sell it for $50 ten years later, your capital loss is $50 since you sold it for less than you purchased it for.
Learn more about capital gains/losses on our blog.
Common Stock: Learn more about common stock on our blog.
Cockroach Theory: Learn more about this and other strange investing terms on our blog.
Dead Cat Bounce: Learn more about this and other strange investing terms on our blog.
Dividend: A dividend is a way to share in the profits of the companies that you own stock in. Dividends are issued as a fixed payment per share of stock to the owner of the stock. For example, if you own five shares of ABC stock and ABC company declares a $.05 dividend, you will receive $0.25 in dividends ($0.05 x 5 shares). Dividends are often issued by more mature companies and are often sporadic.
Learn more about dividends on our blog.
Earnings Report: An earnings report is a report created by publicly traded companies about their financial performance. Earnings reports are often an important driver of stock price changes. A positive earnings report will make stock more expensive as more investors want to own the company. A negative earnings report, or one that does not live up to expectations, will drive stock price down.
Exchange Traded Fund (ETF): An Exchange-Traded Fund (aka ETF) is a bundle of different stocks, bonds, or other investments that trades like a stock on an exchange—shares can be bought and sold, and its value can fluctuate (both of these can happen throughout the day). An ETF’s prospectus will have important info about the Fund’s investment objective (basically what the ETF is intending to accomplish), expenses, risks, and other info you should know about. For more information, visit our blog post.
Equity: Equity is ownership. When you own a part or all of something, you have equity in it. More here.
Garbatrage: Learn more about this and other strange investing terms on our blog.
Greenshoe Option: Learn more about this and other strange investing terms on our blog.
Fractional Shares: A fractional share of stock is part of a full share of stock. Imagine you take a $100 share of stock and split it into some number of pieces. You can now buy one of those pieces (a fractional share) and become an investor without paying $100 to buy a full share of stock.
Learn more about fractional shares on our blog.
Investing: Investing is the action of using money to buy something with the hope that it will increase in value and can be sold for more money in the future. There are many things that we can invest in: stocks, bonds, real estate, Star Wars toys…you get the point. These are all things you buy and hope become worth more at some point in the future so you can sell them for a profit. Investments can also become worth less, which means you may only be able to sell them for less than you bought them for.
IPO: Learn more about IPOs on our blog.
Market Index: Learn more about market indexes on our blog.
Micro-Investing: Learn more about micro-investing here.
NASDAQ: NASDAQ (National Association of Securities Dealers Automatic Quotation System) is an electronic stock exchange system comprising more than 4000 securities. It’s the second largest stock exchange in the U.S., after the New York Stock Exchange.
Options Trading: An option is a contract that allows investors to buy or sell a specific stock at a chosen price by a particular date. The options market is separate from the stock market, where investors buy or sell options instead of stock.
Poison Pill: Learn more about this and other strange investing terms on our blog.
Portfolio: In investing terms, your portfolio is all the various stocks you own. If you own stock in 20 different companies, then those 20 companies would make up your investment portfolio.
Learn more about portfolios on our blog.
Preferred Stock: Learn more about preferred stocks on our blog.
Private Company: Learn more about private companies on our blog.
Proxy Voting: Proxy voting is a common way for the owners of a company’s stock to vote in annual shareholders meetings. When shareholders vote by proxy rather than attending the annual shareholders meeting, they designate someone to represent their vote in the company matters being voted on. This designated person casts a vote in line with what is indicated on the proxy ballot, giving shareholders the ability to vote in shareholder meetings without being physically present.
Learn more about proxy voting on our blog.
Publicly Traded Company: Publicly traded companies are those either partially or completely owned by the public. A publicly traded company is created when a private company goes public, called an initial public offering (IPO). Going public means the company is offering small pieces of ownership that can be purchased by the general public, making those purchasers partial owners in the company.
Learn more about public companies on our blog.
Puke Point: Learn more about this and other strange investing terms on our blog.
Rate of Return: The rate of return is the amount the price of a stock changes over a set period of time. For example, you may hear that a stock price increased 1.5% on a specific day. The daily rate of return for this stock is 1.5%. Rates of return may also be discussed in any amount of time, such as monthly, annually, 10 year, or even 50 year returns. This refers to how much has the stock’s price changed over the designated period of time and can be either a positive or negative rate of return.
Red Herring: Learn more about this and other strange investing terms on our blog.
Share: A specific term for ownership of stock in a specific publicly traded company. More here.
Shareholder Meeting: Learn more about shareholder meetings on our blog.
Stock: A general term for a piece of ownership in a publicly traded company. More here.
Stock Exchange: A stock exchange is a place (physical or electronic) that facilitates trading of stocks. Those wishing to buy and sell stocks are matched together on an exchange where they can trade ownership of the stock. For example, if you place an order to purchase $100 of stock, your “buy” order is taken to an exchange and matched up with a “sell” order for that same stock, completing a stock exchange.
Learn more about stock exchanges on our blog.
Stock Split: A stock split occurs when full shares of stock are split by some predetermined ratio. For example, a 2-for-1 stock split means that for every existing ful share, it will be split into 2 shares. When this occurs, the price is cut in half and the number of shares doubles. If you own 20 shares of a $10 dollar stock that undergoes a 2-for-1 split, you will own 40 shares of $5 stock after the split.
Stock Tickers: Learn how to read stock tickers here.
Trade/Trading: Trading describes the action of buying and/or selling stock on the stock market.