The stock market can seem scary if you’re a beginner investor. Whether someone has told you to start investing or you’ve overheard people talking about stocks, it can feel intimidating if no one has taught you the basics. We’re here to tell you that it’s okay! That’s normal – after all, we don’t learn this stuff in school. However, with about 55% of American adults invested in the stock market in 2020, it’s beneficial for you to learn the basics of the stock market if wealth is a goal of yours.
Investing, assets & securities
Investing for beginners can be a challenging process. Even common investing terms can sound overly complex and scare people away before they even get started.
To keep things simple, the first thing to understand is that people choose to invest when their goal is to make more money. Investing occurs by purchasing assets.
Assets are things with monetary value that have the potential for future economic benefit. An asset people have an easy time understanding is a house. It has the potential to appreciate (or increase in value) and the potential to bring in cash flow if it’s rented out.
A house is an example of a “real” asset. This means it’s a physical asset that you can touch. It’s tangible. Other examples of real assets include commercial buildings, gold, art, collectibles, etc.
Investing tends to get confusing for beginners when it comes to intangible assets. In the financial world, people invest in intangible assets in the form of financial securities. Common examples of securities are stock (also known as shares or equities of a company) and bonds.
10 Stock Market Terms For Beginners
If you are looking to invest in stocks, you would do this by purchasing assets in the stock market. Transactions for purchasing stocks are now largely done online, especially for retail investors.
Here are 10 beginner terms to help you learn more about investing in the stock market.
#1. Stock Exchange
A stock exchange is a platform where investors and traders buy and sell their stocks. An example of a stock exchange is the New York stock exchange (NYSE) which is the largest stock exchange in the Americas by market cap, a.k.a. how much a company is worth as determined by the value of all its outstanding stocks.
#2. Broker or Brokerage
A broker is an individual or a company that executes your stock trading orders for you.
#3. Buy
To buy means to purchase stock of a company, also known as taking a position in a company. Investors and traders usually take this position when there’s a high probability that the stock will rise in price. Retail investors typically buy stock on an exchange, meaning you are actually purchasing the stock from another investor (as opposed to buying it directly from the company).
#4. Sell
To sell means to give up your position in a company by selling the stocks you purchased. Selling stock is the direct opposite of buy. When investors and traders have realized their desired profit or want to cut their losses, they sell their stocks. Similar to buying, retail investors typically sell stocks on an exchange.
#5. Bid
If you are looking to buy a stock, your bid is the price you’re willing to offer to buy the stock.
#6. Ask
If you are looking to sell a stock, your ask is the price you’d like to get for selling the stock.
#7. Dividend
A dividend is a company’s net earnings that’s distributed to shareholders on a yearly or quarterly basis. Not all stocks offer dividends.
#8. Portfolio
A portfolio is a collection of investments or securities owned by an investor. Investors sometimes refer to their portfolio by its size or monetary value, and sometimes by its makeup (e.g., percentage of portfolio in domestic vs international stocks).
#9. Bull Market
A bull market is a condition where the price of a stock is rising or expected to rise. More generally, investors say they are bullish about a stock or the overall market if they think its value is going to rise.
#10. Bear Market
A bear market is when the price of a stock is falling or expected to fall. Investors may say they are bearish about a stock or the overall market if they believe its value is going to fall.
There are a lot more terms to learn when you start investing but hopefully this has given you a good start. Knowing common stock market terms can impact your level of investment success. Stick with it! The more you learn about personal finances and investing, the more common these terms will become.
