Market Update
MARKET EDGE

GLOSSARY

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Market Terms and Definitions

Many years ago, there was a marketing campaign that used the phrase “An educated consumer is our best customer”. With that thought in mind, we would like to assist our subscribers with their understanding the certain terminologies that are associated with the investment world. There are many more than what are enclosed here however the following will greatly assist in discerning the meaning from and the explanation of each of them as well as to familiarize you with many of the terms used in explaining our analysis of the markets.
Bid And Ask Price

The difference between the highest price a buyer will pay for a stock or mutual fund share and the lowest price a seller will accept.

Blue Chip Stock

Usually referring to the stock of old, stable and well-established companies.

Broker

A Broker is either a firm or a person who executes a buy of sell order for stocks or other securities.

Bull Market

The term Bull Market refers to a rising market. Most stocks increase share value when a Bull Market is in place. Bulls charge forward, hence the term relating to a forward (and upward) market.

Certificate of Deposit

This is a bank-issued security paying a generally higher rate than a savings account and held for a specified timeframe.

Close

The Close refers to the Stock Market ceasing trading on the day. The major exchanges end trading at 4pm Eastern Time.

Common Stock

The term ‘Common Stock’ refers to publicly traded shares of stock. In exchange of a higher risk a Common Stock shareholder can gain more value if the company’s valuation increases.

Correction

Corrections are commonly named when the stock market drops 10 % or more. The markets generally recover quickly during a Correction and can trigger a Bull Market due to bargain hunters entering the market.

Crash

A Stock Market Crash usually happens during a sudden sell-off and drop in share prices that was unforeseen. Panics and panic-selling are common during a Market Crash. Market Crashes can cause a long-term Bear Market.

Day Trading

Day Trading refers to the practice of buying and selling stocks daily. Day Trading is a highly speculative attempt at a quick profit.

Debt-To-Equity Ratio

The Debt-to-Equity Ratio, also known as D/E, is used by analysts to determine if a publicly traded company uses debt to pay it’s bills.

Diversification

Diversification is the practice of owning many different kinds of stocks thereby reducing exposure to any one industry or sector. This is one of the hallmarks of a mutual fund.

Dollar Cost Averaging

Dollar Cost Averaging refers to buying shares of stock or mutual funds at the same time – usually every month but in a retirement plan such as a 401k or 403b could be as often as once a week or biweekly. It is the average of the highs and lows of the share price of a given time frame.

Earnings per Share

Earnings per Share or EPS as it is referred to is the measure of profitability discovered by dividing a company’s profit (or net income) by the number of outstanding common stocks. The EPS is one of the best indicators of the health of a company.

Exchange

The Exchange is where traders and investors buy and sell stocks. The New York Stock Exchange and the Nasdaq are the two most popular exchanges.

Exchange-Traded Funds

Also known as ETFs, Exchange Traded Funds issue stocks that are traded on stock exchanges such as the NYSE. These are index-portfolios meaning they invest in different (stock) exchanges in the market.

Fundamental Analysis

Fundamental Analysis refers to the set of basic data which can include macroeconomics, microeconomics, liabilities, debts and revenue.

Index

An Index is the gathering of stocks for a specified purpose. The Index can measure various stocks held within that Index. An example would be the S&P 500. The S&P 500 is short for the Standard and Poor’s measurement of 500 different stocks within that Index.

Initial Public Offering

Known as IPOs, Initial Public Offering is the initial group of a company’s shares sold to the public through the stock exchange. IPOs can be risky due to the unproven track record. Many investors like to invest in IPOs due to their growth potential.

Investment

This is the purchase of assets with the hope of an increase in price and/or to generate income.

Large-Cap Stocks

These are companies with at least a $10 Billion dollar market capitalization.

Market Capitalization

Market Capitalization is a term that investors who are looking for growth (as opposed to income-only) examine and is the monetary value of all the shares of a company’s stock.

Mid-Cap Stocks

Mid-Cap Stocks are shares of stock in middle-sized companies. These are companies with a Market Capitalization of between $2 billion to $10 Billion.

Mutual Fund

A Mutual Fund is a Professionally Managed portfolio of many different stocks in publicly traded companies. The fund can have different sectors within their portfolios and also have specific purposes – growth, or income, or combinations thereof. Mutual Funds differ from ETFs in that a Mutual Fund has far more structure than an ETF. Mutual Funds do not trade on stock exchanges but generally the shares of the companies the fund owns, do.

Net Income

Net Income, Net Profit, the Bottom Line – all of this concerns the amount of money a company makes after deducting the total expenses and costs from the revenue the company receives.

Open

The Open is when the trading day begins. The U.S. stock market opens at 9:30am.

Penny Stocks

Penny Stocks are those that trade under $5.00 per share. They do not trade on a major exchange but instead via the Over-the-Counter (OTC) market.

Portfolio

A Portfolio refers to the collection of assets that a trader or investors own.

Price-Earnings Ratio

The Price-Earnings Ration (P/E) is the formula that is used in determining the valuation of a company. The calculation used here is to divide the current stock price by the previous 12 months’ earnings per share.

Publicly Traded Company

A Publicly Traded company is one that is listed on a stock exchange.  It has the legal right to issue stock.

Rally

A Rally is a rapid increase in the stock market of the price of the stocks traded. Rallys are generally declared when the market makes significant gains.

Risk Management

Risk Management is the belief that an investor can or should limit their exposure to taking a risk on a stock or investment. It also refers to preventing losses on the determined investment.

Sector

A Sector comprises a group of stock in the same industry.

Share

A Share of stock is the unit of an investors’ ownership or equity in a publicly traded company.

Small-Cap Stocks

Small-Cap Stocks are shares in a small-sized company. These companies have a Market Capitalization of less than $2 billion. Small-Cap Stocks are generally regarded as growth oriented, speculative investments.

Spread

The Spread is the difference between the bid price and ask price of a particular stock or mutual fund.

Stock Exchange

The Stock Exchange is the market where shares of stock in public companies are traded.

Stock Symbol

Every stock is assigned an alphabetic symbol consisting of one to four characters. Stock Symbols represent publicly traded companies on the stock exchange.

Subaccount

A Sub account is the general term used to describe the various types of investment options available in a plan such Retirement accounts such as 401Ks, 403Bs as well as Variable Annuities.

Technical Analysis<

Technical Analysis is the study of the major stock markets by using stock charts, metrics, data, indicators and mathematical formulas to gauge future stock market trends.

Treasury Bills

Treasury Bills, also known as T-Bills is short-term debt obligation of the US Government and are issued to finance the operations of the government. These debt-obligations are considered secure and low-risk.

Trends

A trend is formed by gauging the momentum of a certain market sector or the entire stock market.

Volatility

Volatility, also called ‘Market Volatility’ is the statistically measure of changes in the market as well as a measure of the share price. How stable a stock is can be gauged by its volatility. High levels of volatility can indicate the emergence of a Bull Market or a Bear Market.

Volume

Also known as ‘Market Volume’ is the number of stocks traded over a period of time.

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