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Demystifying Wall Street Terms
Have you ever tried to read a business article and felt pretty much lost half way through because of all the special terms the writer used? Wall Street lingo, in particular, can be quite perplexing if you are new to the stock market. In this investment arena, the term "bear market" does not allude to a trade of large furry mammals. Neither does "black Monday" refer to the "coach-firing" day following the final Sunday of the NFL season. Wall Street is a fierce arena; there's quite a learning curve. So don't foolhardily jump into it until you at least understand the stock market basics. This article won't turn you into a pro investor overnight but only aims to simplify some interesting Wall Street terms all beginning investors should know. To categorize it academically, this is probably Wall Street 101, lesson 1.
Automatic Dividend Reinvestment - A stock investment plan in which shareholders allow their dividends to be automatically used to purchase more shares of stock instead of receiving a cash dividend payment
Bear Market - A declining market with a sharp, prolonged plunge in the price of stocks
Big Board - Nickname for the New York Stock Exchange
Black Monday - October 19, 1987 when the Dow Jones dropped over 500 points
Blue Chip - The common stock of a reputable company with a history of earnings growth and dividend increases
Bull Market - A thriving market with a huge, continuous rise in the price of stocks
Dividend - A portion of the company's profits usually rewarded to shareholders on a quarterly basis
DJIA - Dow Jones Industrial Average. The average of the stock prices, calculated from the prices of the 30 leading industrial stocks
Earnings Per Share - A company's net income divided by the number of outstanding shares
Index - A statistical benchmark that measures a whole market, based on a representative selection of stocks or bonds
IPO - Initial public offering, aka new issue. A company's offering of stock for sale to the public for the first time
Liquid Asset - Cash or any types of asset that can be quickly and conveniently converted into cash
Margin - A collateral or deposit a client gives to a broker in order to borrow from the broker to buy stocks
Market Order - An order to buy or sell a certain number of shares as soon as possible, at the best available current price
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Outstanding Shares - Stock shares that have been purchased and held by investors (either the company's insiders or the public), but not the shares that have been repurchased by the company.
Point - A yardstick for measuring a price change. For a stock, 1 point means it moves up or down by $1. For a bond, on the other hand, 1 point indicates a higher amount of dollars. For example, 1 point for a bond with a face value of $1000 actually means a $10 price change.
SEC - Securities and Exchange Commission, a federal agency that oversees the sale of stocks, mutual fund shares, stockbrokers and financial advisers, etc.
Spread - The difference between an investor's bid and an issuer's requested price
Stock Split - Division of outstanding shares of stock, made by the company's board of directors. For example, in a 2 for 1 stock split, a shareholder with 1 share will get one additional share whereas a shareholder with 2 shares will end up with 4 shares. Accordingly, the price for each share will be halved. Many companies do this when they think their share price has become too high.
Stock Symbol - It's also known as a "ticker symbol," which is a series of letters, numbers or combinations of both assigned to a stock on a particular stock market for trading purposes. For example, in the U.S. stock market, the ticker symbol for Apple Inc. is AAPL, whereas the one for Microsoft is MSFT.
Street Name - Stocks that are held in the broker's name rather than the customer's.
Treasury Shares - Stock shares that have been repurchased by the company that had issued them in order to decrease the number of outstanding shares on the open market
Underwriter - An investment banker who buys shares of a new issue of stocks and sells them to investors in order to make a profit on the spread
Yield - AKA a dividend yield. It's a way to measure how much cash flow you are receiving from your investment on a stock. To calculate a dividend yield, divide the annual dividend per share by the price per share.