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Basic Terms
Ask: The lowest price a seller is willing to accept when selling a stock.
Bid: The highest price a buyer is willing to accept when purchasing a stock.
Blue Chip: A
company that has a history of solid earnings, regular and increasing
dividends, and an impeccable balance sheet. For example, Coca-Cola.
Book Value: The value of the company if all liabilities were subtracted from assets and common stock equity
Broker: A person that buys or sells stocks in exchange for a fee which is called a commission.
Commission: A fee charged by a broker in exchange for handling the purchase or sale of a security.
Dividend: A portion
of a company's income that is paid out to shareholders on a quarterly
or annual basis. Some even declare monthly dividends. Dividends are
declared by the Board of Directors.
Dow Jones Industrial Average:
The Dow Jones Industrial Average (or DJIA) is by far the most popular
and widely used gauge of the U.S. Stock Market. It consists of a
price-weighted list of 30 highly-traded Blue Chip companies.
Market Capitalization:
A company's market capitalization, also known as market cap, is
calculated by taking the number of outstanding shares of stock
multiplied by the current price-per-share.
Market Maker: A
Market Maker, also known as a MM, makes the market liquid. A market
maker is a bank or brokerage company who buys a stock from when you
sell the stock, or sells it to you when you put a buy order in. Even if
the MM doesn’t have a seller lined up, they will buy it from you.
It would be almost impossible to try and find an exact match of the
amount of shares you want to buy or sell, this is why MMs exist.
NASDAQ: A stock
exchange where mostly shares of technology companies such as Microsoft
and Cisco are traded. An exchange is a place where, in our case, stocks
are traded. The most famous in the U.S. is the New York Stock Exchange.
P/E Ratio: How much
money you are paying for $1 of the company's earnings. In other words,
if a company is reporting a profit of $2 per share, and the stock is
selling for $20 per share, the P/E ratio is 10 because you are paying
ten times earnings.
Spread: The difference between the Ask and the Bid.
Stock: Stock is
best defined as ownership. A business is divided up into shares of
stock and parts of the company are sold to investors to raise money.
Yield: When a
company pays a dividend the yield is the percentage of hte stock price
in relation to the dividend paid. In other words, if a stock is trading
for $10 and pays a dividend of $0.50, the yield is 5%, because for
every $10 you invest, you would receive 5% back annually in form of a
fifty-cent dividend.
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