Here you will find definitions for many of the terms used when discussing the financial markets.
- Equity – Equity is the value of an ownership interest in property, including shareholders’ equity in a business.
- Beta – Is used in the financial industry as a measure of an investments risk, specifically pertaining to the volatility of a stock in comparison to the broader market.
- Fundamentals - A method that uses financial and economic analysis to predict the movement of security prices such as bond prices, but more commonly stock prices.
- Technicals- A discipline for forecasting the direction of prices through the study of past market data, primarily price and volume.
- Shorting – Also known as short selling, or going short. Shorting is the practice of selling an asset (such as a stock) prior to owning the asset. To do so, the individual borrows shares from a third party in which they are obligated to return shares to later. If the individual can sell borrowed shares, and purchase shares to repay his loan at a lower price, the short position will be profitable.
- Chart Patterns – A chart pattern is a pattern that is formed within a chart when prices are graphed. In stock and commodity markets trading, chart pattern studies play a large role during technical analysis. When data is plotted there is usually a pattern which naturally occurs and repeats over a period. Chart patterns are used as either reversal or continuation signals.
- Momentum – A measurement for the amount of money flowing into a specific equity.
- Sentiment – The publics outlook on the future of a stock.
- Fair Value – The “fair” price to pay for a given asset, equity, ect.
- Dividend – Payments made by companies to shareholders, for holding the companies shares. Often used to lure investors into buying and holding a companies shares.
- Merger/ Aquisition – Refers to the aspect of corporate strategy in which one company, purchases another company or merges together with another company.
- Stock Split – Also called a stock divide, increases the amount of shares outstanding and the price is adjusted to reflect the increase in shares.
- Short Squeeze – When a stock has been shorted by many traders for some time, and these short positions are cleared due to a bottoming in price, the large amount of short sellers purchasing the stock to cover their short positions causes a very volitale price enviornment.
- Sector – An area of the economy, where many businesses share the same related type of product or service. I.e. Banks would comprise the financial sector along with any other company that deals with financial services.
- Commodity – An economic good refering to agricultural products such as oranges, wheat, ect. or of mining nature such as oil, gold, silver, platinum, copper, ect.
- Bull Market – When the broader market, or any particular part of the market has significant up-side potential from sound underlying fundamental elements, positive sentiment, or momentum.
- Bear Market – When the broader market, or any particular part of the market has significant down-side potential from weak or poor foreseable fundamentals, poor or unconfident sentiment, or momentum.
- Hawkish Market – Someone who is hawkish takes large positions and an aggressive stance towards interest rates. A hawkish market may mean that iterest rates are a key market mover, or may have some large impact on the broader markets.
- Derivatives – A derivative is an asset which its price is reflective of another underlying asset. For example, a company that provides microchips to Apple (AAPL) is a derivative of Apple because their business is reflective of Apples need for microchips. Thus the company would be reflective of output of products at Apple.
- Mutual Funds – Mutual funds are proffessionaly managed portfolios of any type of a collection of assets.
- ETF’s – An acronym for Electronicly Trade Fund. An ETF is like a stock, but instead of buying shares in a company, you buy shares of an ETF which are like purchasing shares into the industry (or all the busines providing the same product or service) rather than any one particular company in that field.
- Trend – A trend is the current direction a stock is moving in based on historic price movement.
- Leverage – Any technique designed for multiplying gains or losses. Purchasing stocks on margin (borrowed money) is a simple form of leverage.
It will be helpful to understand these terms as we discuss specific stocks.