Basic investing terms you need to know - Part 2

When you open a financial magazine or business section of newspaper, you might have notice some common financial terms that you don’t understand. I’ll try to provide some details of these terms. The following is the first part of the article. I'll also try to provide some figures or/and tables to help you to understand these terms.This hubpages is the continuation of my previous article of investing definition (part 1) .

investment grade level from wikipedia
investment grade level from wikipedia

Investment Grade Bond

Investment Grade Bond is the broad credit designation given to either corporate and/or municipal bonds which have a high probability of being paid, and few, if any, speculative features. Very rarely this type of bond goes unpaid by the issuer. These bonds rated Baa and higher by Moody's Investors Service, or BBB and higher by Standard & Poor's, are considered by those agencies to be "investment grade." You can find this bond either from new issuance or secondary market from your brokerage. Example of GE Capital Internotes (CUSIP: 36966R6S0) has maturity date of May 15, 2022 Moody Rating of & S&P Rating of AA+. This bond has 5.4% yields and paid semiannually.

I’ll provide more details on bonds on my next article.

dow jones industrial index
dow jones industrial index

Index

Index is on of method measuring a section of the stock market. For example, Dow Jones industrial consists of 30 different stocks in its index and S&P 500 has 500 different stocks in its index.

One of the following major stock market indexes:

  • S&P 500 (.SPX) - Standard & Poor's 500
  • DJIA (.DJI) - Dow Jones Industrial Average
  • NASDAQ (.IXIC) - NASDAQ Composite Index
  • Russell 2000 (.RUT) - Russell 2000 Index

 

walmart stock overview from yahoo
walmart stock overview from yahoo

Market Capitalization or Market Cap

Market Cap is the market price or value of an entire company. This is calculated by multiplying the number of shares outstanding by the price per share. For example Wal*Mart Stores, Inc (WMT) as of July 20, 2010 has 3.71 Billions shares outstanding and closing price of $50.88. This means the market cap of Wal*Mart (WMT) is 188.76 Billions (i.e. 3.71Billions multiply by $50.88).

Market Capitalization is a measure of company size in stock market. For comparison purposes, companies are usually divided into three groups according to Market Capitalization—large cap, mid cap, and small cap. For example, most of the companies in the Dow Jones Industrial Average and the Standard & Poor's 500 (S&P 500) are large cap. Small cap companies are typically not widely followed by analysts. Small company is riskier than large company.

Moving Averages

Moving averages are an average price of a security calculated periodically over a period of time. Price charts typically provide several popular moving averages using SMA or EMA. Moving Averages always plot in the chart's price window. Typically, people use 9 days, 50 days, 100 days, 200 days moving average for buying stock. For example, above Dow Jones Industrial index, it has 50 days moving averages of 10,206 & 200 days moving averages of 10387.

also, if you choose a multiple moving average (e.g., SMA (3-line)), the chart automatically determines the lengths of SMA 2 and SMA 3 based on the number you enter. For example, if you select SMA (3-line) and enter 9, the chart plots three Moving Averages of 9 bars, 18 bars, and 27 bars in length. SMA 2 is always twice the length of SMA 1, and SMA 3 is always three times the length of SMA 1.

No Transaction Fee (NTF) Funds

Funds available through your mutual fund selection without paying a transaction fee to your brokerage such as Fidelity. A transaction fee is similar to a brokerage fee or commission, which you pay when buying or selling a stock. You can find all fees as described in a fund's prospectus still apply. Usually, redemption/exchange fees must be paid on those funds that charge such fees if shares are sold within certain time frames. Other fees of mutual fund include sales charges or 12b-1 fees as well as interest expense fees and management fees.

For example in Fidelity, No Transaction Fee Funds (NTF) included in the Mutual Fund Evaluator include all no-load funds (and a few funds with a 12b-1 fee greater than .25%, which are not considered no-load funds) available without paying a transaction fee to Fidelity.

Options

Option is a right of investor/ trader to buy or sell shares at a guaranteed price for a specific period of time. With a call option, the buyer has the right to buy shares of the underlying security at a specific price for a specified time period. With a put option, the buyer has the right to sell shares of the underlying security at a specified price for a specified period of time. For instance, in U.S. exchange-listed equity option contracts, the expiration date is always on the Saturday that follows the third Friday of the month unless Friday is holiday.

Note: Only use option if you understand the basic of option strategy etc.

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