What is stock market?
The stock market, also known as the equity market, is a place where publicly traded companies’ shares are bought and sold. It is a platform where investors buy and sell ownership stakes in companies in the form of shares of stock. The stock market serves as a marketplace for buyers and sellers to trade stocks, bonds, and other securities.
Stock prices are determined by the laws of supply and demand, meaning that prices rise when there are more buyers than sellers, and prices fall when there are more sellers than buyers. Investors can make money in the stock market by buying stocks that they believe will increase in value over time and selling them at a profit.
The stock market is an important part of the economy because it allows companies to raise capital by selling shares of their stock to investors. This capital can then be used to fund business operations, research and development, and other important initiatives. The stock market also provides investors with an opportunity to earn returns on their investment, either through capital appreciation (an increase in the value of the stock) or through dividends (a portion of a company’s profits paid out to shareholders).
Stock market terminology:
The stock market has its own unique terminology and jargon that can be confusing to those who are not familiar with it. Below is a list of some common stock market terms:
- Stock: A share of ownership in a company.
- IPO: Initial Public Offering, when a company first goes public and sells its stock to the public.
- Bull market: A market in which stock prices are rising.
- Bear market: A market in which stock prices are falling.
- Index: A measure of the performance of a group of stocks, such as the S&P 500 or the Dow Jones Industrial Average.
- Volume: The number of shares traded in a day.
- Market capitalization: The total value of a company’s outstanding shares of stock.
- Dividend: A portion of a company’s earnings that is paid out to shareholders.
- Blue chip stock: A stock in a large, well-established company with a history of steady earnings and dividend payments.
- P/E ratio: Price-to-earnings ratio, a measure of a company’s stock price relative to its earnings.
- Bid: The price at which someone is willing to buy a stock.
- Ask: The price at which someone is willing to sell a stock.
- Spread: The difference between the bid and ask prices.
- Market order: An order to buy or sell a stock at the current market price.
- Limit order: An order to buy or sell a stock at a specific price.
- Stop loss order: An order to sell a stock if it falls below a certain price.
- Margin: Borrowed money used to buy stock.
- Short selling: Selling stock that you don’t own, in the hope of buying it back at a lower price.
- Volatility: The degree of variation of a stock’s price over time.
- Resistance: A level at which a stock’s price has historically had difficulty rising above.
- Support: A level at which a stock’s price has historically had difficulty falling below.
- Day trading: Buying and selling stocks within the same trading day.
- Options: A type of financial derivative that gives the holder the right, but not the obligation, to buy or sell an underlying asset (such as a stock) at a specified price.
- Futures: A financial contract that obligates the buyer to purchase an asset (such as a stock) at a specific price and time in the future.
- ETF: Exchange-traded fund, a type of investment fund that is traded on a stock exchange like a stock.
