Stock Market Terminology

As with anything else, mastering the stock market means mastering the lingo – and for traders, that can be a bit confusing at first. Below, you will find a list of stock market terminology, including the most common stock terms and their definitions for a better grasp of stock market operations.

Ask – The price that a seller is willing to take for a share of stock; how much it will cost you to buy stock

Back testing – Applying a strategy to historical data to see if it is valid

Bear Market – A period of declining stock value, usually accompanied by investor pessimism. The Vanguard Group defines a bear market as a price decline of 20% or more over at least a two-month period

Block Trade – Buying or selling a large amount of shares; the minimum is 10,000 shares but most block trades are much larger

Blue Chip – An established company with a national or international reputation for stability, profitability, and value

Bull Market – A period of rising stock value, usually accompanied by investor optimism.

Bid – The price that a buyer is willing to pay; how much you will make when you sell

Close – The price of the stock at the end of the trading day

Dividend – A payment made out of the company’s profits to its shareholders

Dow Jones Industrial Average – The leading stock market index in the U.S.; averages the value of 30 component stocks (blue chip stocks)

Earnings Per Share (EPS) – The company’s profit divided by the average number of outstanding shares, or shares currently in the market; gives you an idea of the stock’s value

Electronic Communication Network (ECN) – Computer system that facilitates stock trading outside of a stock exchange

Fill Or Kill (FOK) – When you want all of your order filled immediately or none at all; for example, if you want to buy 100 shares at $10, a FOK order means you want all 100 shares at that price or none at all

Fundamental Analysis – Examining the financial health and strength of a company to determine its share price, future value, and earnings expectations

Good ‘Til Cancelled (GTC) – When your order is valid until you cancel it; placing an order to buy 100 shares at $10 GTC means that is a standing order until you tell the system to kill it

Hedge – Limiting your losses or reducing risk by placing orders to cover two or more possible events in the market

Initial Public Offering (IPO) – The first time a company’s stock is available to the public on an exchange

Limit Order – When you want to buy or sell a stock at a specific price or better

Liquidity – Being able to sell or buy shares in a stock without the transaction seriously affecting the stock’s price; also refers to how easy it is to buy or sell shares

Margin – Borrowing money to trade for more than what you have in your account

Margin Call – When the amount of money you have in your margin account falls below the broker’s minimum margin requirement, or the lowest amount you must have in your account

Market Capitalization – One measure of a company’s worth; the price of a share multiplied by the number of shares currently in the market

Market Order – When you want to buy or sell a stock at its current price

Moving Average – The average of a stock’s price over a period of time, adjusted daily; gives you an idea of a stock’s trend

Open-high-low-close (OHLC) – A type of chart that shows you the open, high, low, and close price of a stock for a period of time; a candlestick chart is an OHLC chart

Price-to-Earnings Ratio (P/E Ratio) – How much a stock costs relative to how much the company earns per share of stock; calculated by dividing the stock price by the company’s earnings per share (EPS)

Quote – The bid, ask, and last price for a stock at a given point during the trading day

Short Sale – When a trader borrows shares from a brokerage, sells them, then buys them back when the stock is cheaper, returning them to the broker and pocketing the difference (the profit); used when you think a stock’s price is going to decrease. For example, ABC is at $10. You borrow 100 shares and sell them for $1,000. The price goes down to $9. You buy 100 shares of ABC for $900 and return them to the broker, thus pocketing a $100 profit ($1,000 minus $900)

Spread – The difference between the bid and ask price

Stop Order – When you want to buy or sell a stock after it reaches a certain price; at that time, the order turns into a market order. Used often to limit losses or to protect profits (also known as a stop-loss order)

Technical Analysis – Examining a stock’s price through the use of metrics, indicators, past data, and other techniques to identify trends

Uptick – When a stock’s price rises

Volatility – How much a stock’s price rises or falls over a period of time; a highly-volatile stock will have its price go up and down drastically over a period of time, while a stable stock has low volatility

Volume – The amount of shares being traded at a given point in time; this gives you an idea of how much interest there is in the stock

Yield – The percentage of a stock’s price that is paid out in a dividend; For example, a stock that is worth $50 per share and pays out a dividend of $5 per quarter has a quarterly yield of 10%