Stock market is a general term for all trading centers that enable the exchange of shares of listed companies. This means stock market refers to all the stock exchanges in all the countries of the world.
The main purpose of the stock market is to let companies raise capital from the public through initial public offering (IPO) so that they can use this fund for expanding their business. In return, the investors are benefited by getting a share in the profits of companies that are listed on the stock exchange.
When a new market participant enters the share market world, they are confused with the commonly used stock market jargon.
Every industry uses unique terms and phases that might not be used by everyone. Similarly we have terminologies that are stock market industry specific. These terms are frequently used when we read or talk about the stock market.
Although we have many terminologies in the stock market, they are a handful of stock market jargons that new investors or traders should know.
Here you will learn some of the commonly used terminologies and concepts to help you understand the basic stock market.
Bull market occurs when the stock market index is going up in a good economy. It means the stock market is moving upwards in a sustained manner.
The main reason for a bull market are followings;
- High investor confidence as the overall economy is strengthening
- Expectation that strong results should continue for an extended period of time
If investors believe that the stock prices are likely to go up, then they are said to be bullish on the stock price.
Bear market occurs when market prices of the stocks listed in the stock market continuously decline in anticipation of a bad or weak economy. It’s a market condition where most of the market participants are expecting prices to fall further.
If you believe that the stock prices are likely to go down, then you are said to be bearish on the stock price.
Bear market is also referred to as a downward trend. The opposite of a bear market is called a bull market.
Trend refers to the overall market direction.
We have three different types of trend. When stocks are moving upward it’s known as uptrend or the trend is said to be bullish. If stocks are moving downward, then it’s called a downtrend or the trend is said to be bearish.
If the market is neither moving upward nor downward, or trading flat with no movement, then the trend is called sideways. It’s also called choppy market.
Day trading is a practice of buying and selling securities each day in an attempt to make a quick profit. It’s also referred to as intraday trading.
Bid, Ask and Spread
Bid is what you are willing to pay for a stock.
Ask is what people who are looking to sell their stocks are looking to get for their shares.
Spread is the difference between what people want to spend and what people want to get. This means the difference between bid and ask.
Limit and Market Order
Limit order is a type of order placed by a market participant which tells the broker to execute at the price placed for buy or sell.
Market order is a type of order that executes as quickly as possible at the market price of the security.
Buying stock at a low price to sell it at a higher price is said to be going long. It simply refers to the direction of your trade. For example if you want to buy a stock, then you are said to be long on that stock or planning to go long on that stock.
Going Short or Shorting
Shorting is the exact opposite of going long. In this case, you want to sell a stock which you don’t own in order to buy at a lower price to return the shares to the original owner. In this way you sell at a higher price and buy it back at a lower price to make a profit.
Averaging down means the investor acquires more stock as the price of the stock declines after the initial purchase. This way the investor acquires shares at a lower average cost per share.
This means, buying stock that goes down to decrease the average cost of buying.
Square off means you intend to close an existing open position. If you are long on a stock, squaring off your position means to sell the stock. This means you squared off your existing long position by selling the stock.
Similarly, when you short a stock, squaring off means you are now buying back the stock to close your existing position.
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