Key Terms Every New Investor Must Know
Introduction
Learning investment language makes the stock market far easier to understand. These key terms will help you read charts, follow market news, and make smarter decisions as a beginner.
1. Stock
A share of ownership in a company. When you buy a stock, you become a shareholder and benefit from the company’s growth.
2. Share Price
The current cost of one share of a company. It changes constantly based on supply and demand.
3. Market Cap
Short for market capitalization. It’s the total value of a company’s shares.
Formula: share price × total number of shares.
4. Dividend
A payment some companies give shareholders from their profits. Dividends provide steady income.
5. Portfolio
Your collection of investments, including stocks, bonds, funds, and other assets.
6. Diversification
Spreading your money across different investments to reduce risk. If one asset drops, others may balance it.
7. ETF
An exchange-traded fund that holds a basket of stocks or assets. It trades like a stock and offers easy diversification.
8. Index Fund
A fund that tracks a market index like the S&P 500. It’s low-cost and popular for long-term investing.
9. Bull Market
A market experiencing rising prices and strong investor confidence.
10. Bear Market
A market with falling prices and pessimism. Often defined as a 20% drop from recent highs.
11. Volatility
How quickly and how much prices move. High volatility means bigger, faster price swings.
12. Liquidity
How easily you can buy or sell an asset without affecting its price. Highly traded stocks are very liquid.
13. Brokerage
A platform or company where you buy and sell investments. Examples include online trading apps and traditional brokers.
14. Limit Order
An order to buy or sell a stock at a specific price or better. Useful for controlling entry and exit points.
15. Market Order
An order to buy or sell immediately at the best current price. Fast but less precise.
16. P/E Ratio
Price-to-earnings ratio. It shows how expensive a stock is relative to its profits.
Formula: share price ÷ earnings per share.
17. EPS
Earnings per share. Measures a company’s profit divided by its number of shares.
18. ROI
Return on investment. Shows how much money you gained or lost compared to your initial investment.
19. Capital Gains
Profit you make when selling an investment for more than you paid.
20. Risk Tolerance
How much loss you’re emotionally and financially comfortable with. It guides your investment choices.
Conclusion
Knowing these key investment terms helps beginners navigate the market with confidence. They form the foundation for understanding strategies, evaluating companies, and building a successful portfolio.