Stock Trading 101.

Question 1

• *Market Cap**
• *Market Capitalisation**

Answer 1

Market cap—or capitalization—refers to the total value of all a company’s shares of stock.

Knowing a company’s market cap can help you compare the relative size of one company versus another.

Question 2

Forward Looking

Answer 2

Business term used to identify predictions about future business conditions, typically with publicly-traded corporations.

Also called “discounting mechanism”.

Question 3

Stock Exchange

Answer 3

A stock exchange is a marketplace where stocks, bonds and other securities are bought and sold.

A stock exchange is the place where buyers and sellers show up and exchange their shares for money, or their money for shares.

Question 4

Market Order

Answer 4

A market order is an instruction by an investor to a broker to buy or sell** stock shares, bonds, or other assets **at the best available price in the current financial market.
Market orders are the most basic buy and sell trades.

Question 5

Limit Order

Answer 5

A limit order allows an investor to set a maximum acceptable purchase price amount or a minimum acceptable sales price while placing an order.

The order will be processed only if the asset hits that price.

Limit orders give greater control to the investor / trader.

Question 6

Bid Price

Answer 6

A bid price is a price for which somebody is willing to buy something, whether it be a security, asset, commodity, service, or contract.

It is colloquially known as a “bid” in many markets and jurisdictions.

Question 7

Ask Price

Answer 7

The ask is the price a seller is willing to accept for a security, which is often referred to as the offer price.

Along with the price, the ask quote might also stipulate the amount of the security available to be sold at the stated price.

Question 8

Bid - Ask Spread

Answer 8

The bid-ask spread is essentially the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept.

An individual looking to sell will receive the bid price while one looking to buy will pay the ask price.

Question 9

Liquid Stock

Answer 9

A liquid stock is a stock that trades enough shares so that the holder of the stock can easily sell when they choose to.

A liquid stock is defined as a stock where you can buy or sell a lot of shares without moving the stock too much. Liquid stocks in the U.S. usually have a bid-ask spread of just a penny or two.

Question 10

Illiquid Stock

Answer 10

A stock is considered illiquid when the investor cannot easily liquidate the investments held. In other words, with illiquid stocks, buyers or sellers are not readily available.

Question 11

Limit Order

Answer 11

A limit order in the financial markets is a direction to purchase or sell a stock or other security at a specified price or better.

This stipulation allows traders to better control the prices at which they trade. A limit can be placed on either a buy or a sell order.

Question 12

Day Order

Answer 12

A day order is a stipulation placed on an order to a broker to execute a trade at a specific price that expires at the end of the trading day if it is not completed.

Question 13

GTC Order

Answer 13

A Good-Til-Cancelled (GTC) order is an order to buy or sell a stock that lasts until the order is completed or canceled. Brokerage firms typically limit the length of time an investor can leave a GTC order open. This time frame may vary from broker to broker. Investors should contact their brokerage firms to determine what time limit would apply to GTC orders.

Question 14

ETF

Answer 14

An Exchange-Traded Fund (ETF) is a type of pooled investment security. ETFs track a particular index, sector, commodity, or other assets.

ETFs can be purchased or sold on a stock exchange the same way that a regular stock can. An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities.

Question 15

Bear Market

Answer 15

A bear market is when a market experiences prolonged price declines.

Question 16

Indexing

(Passive Investment)

Answer 16

Passive investing is an investment strategy to maximize returns by minimizing buying and selling. Index investing in one common passive investing strategy whereby investors purchase a representative benchmark, such as the S&P 500 index, and hold it over a long time horizon.

Question 17

P/E Ratio

Answer 17

Price-to-Earnings Ratio is the ratio for valuing a company that measures its current share price relative to its Earnings Per Share (EPS).

Question 18

P/E Ratio

Formula Calculation

Answer 18

Price to Earning Ratio =
Market Value per share / Earnings per share

Question 19

Hedge Fund

Answer 19

A hedge fund is a limited partnership of private investors whose money is managed by professional fund managers who use a wide range of strategies, including leveraging or trading of non-traditional assets, to earn above-average investment returns.

Hedge fund investment is often considered a risky alternative investment choice and usually requires a high minimum investment or net worth, often targeting wealthy clients.

Question 20

(Company) Float

Answer 20

The number of shares of a stock that are actually available for trading.

To calculate the float, you just take the total number of shares outstanding and subtract all closely-held shares (those held by founders, employees, and original investors that are locked up and thus unable to be traded).

Question 21

Bull Market

Answer 21

A bull market is the condition of a financial market in which prices are rising or are expected to rise.

Question 22

EPS

Answer 22

Earnings Per Share

A company net profit divided by the number of common shares it has outstanding. It indicates how much money a company makes for each share of its stock and is a metric used for estimating corporate value.

Question 23

Mutual Funds

Answer 23

A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.

Question 24

Bond

Answer 24

A bond is a debt security. Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time.

When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation. In return, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal, also known as face value or par value of the bond, when it “matures,” or comes due after a set period of time.

Question 25

Option

Answer 25

Options are financial contracts that allow the buyer a right, but not an obligation – like in the case of futures or stocks, to buy or sell an asset on a specific date at a particular price called the strike price, which is predetermined at the date when the option is being purchased or sold.

Question 26

Call Option

Answer 26

Call options are financial contracts that give the option buyer the right but not the obligation to buy a stock, bond, commodity, or other asset or instrument at a specified price within a specific time period. The stock, bond, or commodity is called the underlying asset. A call buyer profits when the underlying asset increases in price.

Question 27

Trading Sideways

Answer 27

A sideways trend is the horizontal price movement that occurs when the forces of supply and demand are nearly equal. This typically occurs during a period of consolidation before the price continues a prior trend or reverses into a new trend.

A sideways price trend is also commonly known as a “horizontal trend.”

Question 28

Blue Chip Stock

Answer 28

A blue chip stock is a huge company with an excellent reputation. These are typically large, well-established, and financially sound companies that have operated for many years and that have dependable earnings, often paying dividends to investors.

A blue chip stock typically has a market capitalization in the billions, is generally the market leader or among the top three companies in its sector, and is more often than not a household name. For all of these reasons, blue chip stocks are among the most popular to buy among investors. Some examples of blue chip stocks are IBM Corp., Coca-Cola Co., and Boeing Co.

Question 29

SPDR

Answer 29

A Standard & Poor’s Depositary Receipt, or SPDR, is a type of exchange traded fund (ETF).

Sometimes called “spiders,” SPY is an ETF based on the S&P 500 Index, and each share represents an ownership interest in the 500 stocks in the S&P 500. Today, there are a number of other SPDR funds available to investors.