Home Stock Market Finace: Terms To Know Before Starting in The Stock Market

Finace: Terms To Know Before Starting in The Stock Market


Before you get started in the stock market, it is a good idea to familiarize yourself with the terminology you will be hearing. In addition to the financial terms, you will need to open up an account with a trading firm. To do that, you will need to put in some cash, transfer over a 401K, or stocks as vehicles for the transactions.

The first types of stock transactions that you may start with are short sales and long. A long sale means you are the owner of the stock and for now, you are just going to hold it. It does not matter how long you hold it either.

Doing a short sale successfully may take some studying and homework. In a short sale, you do not own the stock, but you are gambling that the stock price will go down. If it does go down, you have the right to buy it at that reduced price, and you will net a profit. If the price goes up, and you purchase it at a higher amount, you will owe money.

As you become a more experienced investor, you may begin to dabble in margins. A margin is a type of transaction where you do not put up the actual cash to purchase the stock, but instead, your brokerage loans you the finances to buy the stock. In exchange, the brokerage holds the shares as the collateral, and they may hold other funds in your account.

Another technique you may develop is setting ordered limits. An order limit means you order the brokerage to purchase a particular stock when it falls to a specific price. A situation where you might want to use a limit order is if you have been watching a company for a while and you believe they are going to take off, but the price is high right now. You can set an order to buy it when it hits your predetermined lower price. An order limit cannot be set for a higher price.

Another tool you might end up using is the sell stop. In this case, you order the brokerage to sell your stock if the price falls to a predetermined level.

Call and put options are two strategies to study. A call option gives you the right to buy a stock at a specific price, but it must be exercised within a set period. You are in essence gambling that the price is going to go up. If you do not exercise your option, you forfeit the money that you paid to have the option.

A put option means you are gambling that the price is going to go down, and if you choose not to exercise the option, you give up your money similar to the call option.

There are many more stock terms and tips to learn, so before buying any stocks, make sure to educate yourself first.