Free Financial Lessons
Financial Basics, Terms and Phrases
Learn the language and terminology of Wall Street.
Buy Low, Sell High
Watch for stocks which seem undervalued and sell stocks which seem to be overvalued.
The trend is your friend
If the market or a stock is going up, that trend is the best bet for investors. If a stock or the market is in a downward phase that is what should be expected in the coming days.
Bulls and Bears
Bulls are those investors who think the market is going up. Bears bet on the market going down.
The Tick
The Tick means which direction the market is going right now. It is like two elevators on the 50th Floor of a skyscraper. One is going up and one is going down. Even though they are at the same place, the current movement is either uptick or downtick. If a stock starts the day at 50 and then goes to 75 and then slides slowly back to 65, it is up for the day, but the Tick is down since it is sliding downward at that moment.
Split or Reverse Split
Most stock buyers like to purchase stocks which sell for $10 to $30. If a stock price goes a lot higher, the Board of Directors will vote for a stock split. If a stock is selling for $60 per share the board might decide to double the number of shares and cut the price in half. That means if someone had 100 shares at $60 they will now have 200 shares each worth $30. That by itself does not increase the value of the shares, however, now more investors will buy the stock for their own portfolio which does make the price go up. The reverse is true for a reverse stock split. If the price of a stock goes down below $1 per share it is in danger of being delisted from any major exchange. The Board might decide to raise the price from $1 per share to $4 per share and for each 100 shares held the investor will now own 25 shares. Reverse splits often signal major problems for a corporation.
A Lot
A Lot is 100 shares.
Technical Analysis
When someone looks at stock charts or any numbers related to the stock and tries to forecast the future of that stock it is called Technical Analysis.
Fundamental Analysis
When someone looks at today's news of events that are occuring and tries to use that information as a forecast of the stock's future, that is Fundamental Analysis.
Pump and Dump
When a stock is promoted by con artists or scammers it is called Pump and Dump. The stock is pressure sold to inflate the price and then the stock price falls when a few investors try to sell for a profit. Most investors lose their total investment.
Spin Off or Spinoff
If you own one company's stock and they decide to make one of their holdings a new corporation with its own management and separate Board of Directors, the new firm becomes a spin off of the company whose stock you already own. You will then receive an amount of shares of the new company which is calculated by how many of the shares of the original corporation you own. If it is a one for one spinoff and you own 100 shares of the first company you will own 100 shares of the second company plus you will still own 100 shares of the first company. Each company will have its own value, but in most cases a spinoff will increase your overall value in the two companies from the one you originally held.
Merger and Acquisition or M&A
Sometimes two companies will merge into one larger company. In some cases one company will buy the other company either with cash or with its own stock. In most cases a company which buys another will see its stock price decline temporarily and the company being purchased will increase in value.
Wall of Worry
A stock is said to climb a "wall of worry" when it gradually goes up. Most stocks go up over time but there is always some bad news along the way. At any given time someone will tell you to sell and get out of the market. That is the type of advicce which creates the Wall of Worry.
Dollar Cost Averaging
If you buy a certain amount of stock on a regular basis, that is Dollar Cost Averaging. You can decide to invest $100 or $1000 per month or every six months or whatever time period on a regular basis. You then buy more shares when the stock is down in value and fewer shares when it goes up. Your average price is somewhere in the middle.
Market Order
When you buy or sell a stock you usually will use the "Market" price. If the stock sells millions of shares daily and you check the price before buying or selling, that price probably will not change much during the minute or so it might take you to complete your trade.
Limit Order
When you specify an exact price at which you will buy or sell a stock, that is a Limit Order. If you have an interest in a stock which does not have a great volume each day and you see it is at a good buying or selling price you can place an order to buy or sell at a specific amount. You might get or sell some shares one day and some a few days later, but your price will be controlled by you.
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