If you’re going to make your mark in the trading world, you need to understand the lingo. The terminology can make everything seem more complicated at first, but everything should start falling into place once you get your head around it.
To start with, here are six essential investment terms you should know.
Bear/Bull Market
If a market is referred to as a bear market, you have reason to be concerned. Conversely, if it’s called a bull market, you’ve got something to smile about.
That’s because the former means the market is falling, while the latter is the opposite. The length of a bear or bull market can range from a few weeks to a few years, which can either be amazing or devastating, depending on your situation.
Blue Chip
If a company is referred to as having blue-chip stocks, it means they may be worth investing in. They have a decent history regarding earnings, balance sheets, etc. and therefore are likely to continue in this vein.
They might not be the most lucrative stocks or offer much excitement with trading, but they are typically more reliable.
Clearing
Between trading and settling, there’s an essential process that ensures everything is valid and secure. This is known as clearing.
During this process, securities are exchanged with a clearing broker who executes the sale. Their presence is intended to build trust between buyer and seller, making the transaction more efficient and stable.
When choosing the best clearing broker, there are several factors to consider. This includes risk limits, pricing, latency, and availability, all of which the team at Global Investment Strategy can meet effectively.
Custodian/Custody Bank
A custodian or custodian bank is a secure, private institution designed to look after people’s securities. This may include stocks, bonds, currencies, or metal. Clearing brokers will use these when dealing with a transaction to ensure that the process is more reliable.
Dividends
Plenty of companies offer dividends as an incentive to shareholders. This money forms a share of the company’s income and can vary in how often it’s given out to investors.
Not every company provides dividends, and some will terminate them in times of financial difficulty. Although they can indicate whether you should invest or not, you need more context to understand if this is actually the case.
P/E Ratio
The P/E ratio refers to how the price of a stock fares compared to that company’s earnings. Working this out allows an investor to identify if a stock is overvalued or undervalued, providing deeper insight into whether an investment is worthwhile.
You can work out the P/E ratio by dividing how much a stock is selling for by the amount that the company has earned per share. The higher the ratio, the more earnings growth an investor can expect in the future. There’s a lot of technical terms you need to know when becoming a trader. Some of these you can pick up on the go, but others are worth familiarising yourself with in advance. That way, you can better understand what’s ahead of you as soon as you begin investing.