Newcomers to the world of trading on the stock market floor can find themselves overwhelmed by the seemingly strange terminology that makes up the language of stocks and shares. However, taking the time to understand basic stock market terminology can act as a shortcut to learning more about how the industry functions. Then you can get to grips with the process more quickly and get on with trading and investing.
First, spending some time learning more about the basic stock market terminology and how it all works will increase your odds of receiving a return on your investments. In the world of poker playing, this is called deliberate practice.
Immersing yourself in the world of poker will inevitably make you a wiser player, as you’re better informed and have a complete view of the game. The same applies to the stock market. Both endeavors benefit from applied research, as more knowledge leads to making more informed choices, therefore, increasing your chance of making a profit.
Understanding the concept of bankroll management is an essential early move. If you’ve ever played poker, you will know that you should never risk more than 5 percent of your bankroll on a game. The same concept applies to stock market trading. Money management or bankroll management means not placing all your eggs in one basket.
If you invest your entire bankroll in one go, you have no security net to fall back on and no room to maneuver. By investing with specified funds, you know that your bankroll will not be needed elsewhere; giving you more freedom when deciding how to trade.
The stock market can seem like it puts a lot of value on emotion and instinct. Learning how the balance between optimism and pessimism can affect the market on a day-to-day basis is critical. When prices are on an upward trend, it’s referred to as a bull market while a downward trend is called a bear market.
The bull and the bear have become symbolic of the stock market and its constant state of movement. Watching for volatility caused by a bear market can safeguard you against the onset of panic-induced irrational behavior from other investors. On the other hand, recognizing a bull market may alert you to the possibilities for further investment.
Of course, before entering the stock market, it’s best to have an overview of the different types of stocks that can be traded there. Most stock market talk refers to common stock, which, although it comes with a higher risk factor, also offers the prospect of higher returns. The larger trading companies seen as more of a “safe bet” are often called blue chip stocks.
Preferred stock refers to the other most prevalent type of stock being traded. These stocks come with a guaranteed return but offer less power to the investor than common stock does.
The stock market can seem like a complicated and confusing field to the first-time investor. However, by arming yourself with a basic stock market terminology, you can begin to research the subject in depth. This is the best way to gain a real understanding of how trading works before you dive in headfirst.