Common Stock Market Terms Explained
What You Need to Know
- As stocks, on average, have almost always out performed interest rates in the returns they offer, they can be a great wealth creation tool for anybody.
- Understanding stock market lingo is a must for any would be traders.
- Many stock brokers, as well as helping you trade effectively, offer free lessons in trading terminology to their clients.
- The FTSE consists on the hundred biggest UK companies on the stock exchange. These can often offer low risk investments for those new to trading.
- ’Spread betting’ is different to trading and generally more risky. It’s advisable to get a good grip on how trading works before you begin any spread betting.
Stock markets are an essential part of wealth creation for nearly everyone today. Even if you don’t actively invest in shares, you might own some indirectly through a pension scheme that invests in companies to make your retirement money grow. So it pays to know the basics of how investing in companies works.
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.Shares
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.Share certificate
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.Ex Dividend
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.Market capitalisation
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.Bid/offer spread
When you ask a
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.Blue chip
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.Brokers
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.
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