To effectively read market data, create investment strategies, and/or work in a financial institution, such as a hedge fund, one must be familiar with industry jargon that’s tossed around in financial articles and casual conversations. But before you dive headfirst into that rabbit hole, here are five basic yet essential stock terms that every novice should clearly understand.
As the name implies, annual reports are reports crafted by companies in an attempt to inform its shareholders regarding the current and future standing of the company. Annual reports are filled with critical information, such as cash flow, management practices, acquisitions, etc. It’s a good way to gauge a company’s financial health.
These terms indicate what the collective sentiment is for the stock market or the financial markets in general. The market is said to be bullish when prices are steadily moving upwards or higher, which indicates. Meanwhile, a bearish market indicates risk aversion and loss in the value of the market.
Beta is a common metric you’ll find in most broker platforms and stock screeners. Essentially, it is used to measure the relationship between the activity of a stock’s price in relation to the activity of the whole stock market. For instance, if you have stock A, which has a beta of 2, that means that the stock moves 2 points for every 1 point that the market moves.
It’s important to distinguish investing from day trading as the two have significantly varying degrees of risk involved. Day trading basically refers to any trades opened and closed on the same day. Investing, on the other hand, is regarded as a buy-and-hold strategy.
Dividends refer to a percentage of a company’s profits that are repaid to its shareholders. Companies often reward shareholders on a quarterly or annual basis. It can indicate a steadily growing and prosperous company. Keep in mind that not all companies pay out dividends to their shareholders. Penny stocks, for instance, do not pay out any dividends.
These terms are only the tip of the iceberg on basic financial and investing terminology that you’ll need to understand prior to making your first investment in the stock market. Knowing these terms will help you navigate the complex financial markets more proficiently.