Common Stock Market Terms Explained

Stock market

A stock market brings together people who want to buy and sell stocks and shares, and other investments such as government bonds. In the UK, the main stock market is the London Stock Exchange. Other major exchanges are in New York, Japan, Hong Kong, Germany, Paris and China.

Lists of companies or indexes, are produced daily to give an at-a-glance guide to the performance of sections of the stock market. Each index comprises a collection of companies. In the UK the best known is the FTSE 100 index (Financial Times Stock Exchange 100). This reflects the average performance of the biggest 100 stock market-listed companies in the UK.

Each share is a tiny piece of a public limited company, or Plc. Having a share in a company entitles you to share in the growth and profits of the company. You have the right to receive the company's report and accounts. You also have a say in how the company is run - through voting rights at annual general meetings, for example.

When you buy shares you are usually issued with a share certificate as proof that you own the shares. The value printed on the certificate, usually small compared with the share price quoted on the stock exchange, is the nominal or par, value of the shares (their price at the time they were originally issued). It is unrelated to the current market value of the shares, and is required only for legal reasons. It is worth noting that these days alot of online share dealing firms will hold your shares electronically for you to cut down on paperwork, this is also cheaper and makes it easier to buy and sell.

Most companies share their profits with shareholders in the form of dividends. You are normally paid an amount per share twice a year. If there are no profits that year, there is no dividend. The level of dividend is set by the directors of the company and approved by shareholders. You can also make money on shares due to capital growth. If the company in which you have shares does well, its value will rise, and so will the value of your shares. You only benefit from this growth when you sell the share.

When a dividend is to be issued by a company it is based upon an "on register" or "record date" so you need to hold the shares on the dividend date to get them. However, to create a level playing field (as share prices typically drop when the dividend is paid) when shares are traded on the LSE during this benefit period an "ex" date is set. Before this "ex" date if shares are sold the selling party will need to pass on the benefit or dividend to the buying party.

This is a measure of the company's worth on the stock market. It is the current share price multiplied by the total number of shares in issue. On the stock market, companies can have market valuations ranging from just a few million pounds to more than a hundred billion pounds.

When you ask a broker (someone who buy and sells shares on your behalf) what price the shares of a company are trading at in the market, he will quote two prices: the bid price is the price at which you can sell the shares, and the offer price is the price at which you can buy them. The former figure is always lower than the latter, and the difference between them is the spread.

Bull and bear markets

These terms, whose origins are unclear, related to whether stock markets are rising or falling. A prolonged rise in the index over time is called a bull market. If the market is moving downwards in a sustained way, it is a bear market.

A phrase used to describe large, well-known companies that offer stable earnings and consistent dividend record, for example Vodafone. FTSE Blue-chip companies are reputed to be solid investments.

Shares are bought and sold through brokers. A good broker for this is TD Waterhouse, More information can be found Click to visit TD Waterhouse Share Dealing Site they will also have a full glossary and offer free lessons in share trading where you will learn all the terminology.

Further Reading

• TD Waterhouse is becoming TD Direct Investing. Follow the link to read our guide to the change.
• Whilst your brushing up on your financial lingo why not read our mortgage jargon buster.
• Track the market using the London stock exchange site.

2 comments

Jeremy88
13/08/2012

The stock market can be a very confusing place particularly for beginners. Its good that you went over the common terms such as dividends and market capitalization.
Stock market jargon is what puts off so many potential investors so it's crucial that they are fully grasped

 

SHARETIPSINFO
07/02/2012

In future and option traders trade in lot’s so one can earn or loose quite big amount so it’s always advisable to avail future tips from the stock market experts.
We as a stock market trader should remember we are trading in stock market to earn money from share trading not to lose it as it’s our hard earned money so we should trade with due care.
http://www.sharetipsinfo.com/future-tips.html

 

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