Stock Terms 101
What actually is a stock?
Buying a stock of a company means that you own a fraction of the company. Legally, you’re a part owner of that company. You can buy stocks of a company privately or publicly (through a stock exchange).
Understanding the stock market indices
When people talk about a particular stock market, they’re generally referring to a market index.
A market index is essentially a weighted average group of stocks.
Financial analysts often refer to how the market is generally doing by looking at these indices. If they say “the US market is not looking good today”, then for example the S&P500 index has probably dropped by a bit. If you’ve engaged in a discussion surrounding the stock market, you’ve probably heard of terms like S&P500, NASDAQ Composite, or the Dow Jones Industrial Average. They are simply an index that tracks the performance of a basket of stocks.
What does S&P500 mean?
The S&P500 is an acronym for Standard and Poor 500. It represents the top 500 US listed companies’ performance.
One of the most common financial analysis techniques is creating a comparison between individual stocks with the entire market index.
For example, comparing the return of Apple Inc and the S&P500 market index. By looking at the differences between them, you can understand how they relate to one another.
Financial analysts would ask questions like is Apple Inc performing better than the market index? Is it underperforming the market index?
What are stock exchanges?
The most commonly discussed stock exchange the New York Stock Exchange (NYSE) and London Stock Exchange (LSE). They are often referred by their symbols: NYSE and LSE.
A stock exchange is simply a place where securities (aka stocks) are traded. To trade stocks back in the days, you would have to be in Wall Street to make your trades. Nowadays, you can basically access any investments online.
The existence of a stock exchange is for companies to raise funds and make investments.
If a company wants to expand but doesn’t have the money to do so, they can either ask the bank for a loan or raise funds from the stock exchange.
Understanding stock symbols
Every stock traded on the exchange has a letter symbol representing it. For example, Netflix’s symbol is NFLX. Often, the company’s symbol is a shortened version of its name.
When you’re searching for a company or stock, you can locate them by simply typing in their “company symbol”. In the financial world, the format for a stock is “Stock market name” followed by their symbol.
Take a look at McDonalds: It is listed on the New York Stock Exchange and its symbol is “MCD”. Hence, it is often referred to NYSE: MCD.
Understand How to Read Stock Information
When you are searching up a particular stock on a search engine, Google or Yahoo!, you will often see the stock price, change direction, change amount, and trading volume.
Take Microsoft for example, the symbol for Microsoft is MSFT, it is trading at $61.25 USD per share, and it has dropped $1.35USD today. The number 5K (5,000) represents the trading volume.
What is trading volume?
Trading volume is essentially the number of shares traded on an asset on that day.
What is a good trading volume or bad trading volume?
Good trading volume and bad trading volume does not exist. It is simply a measurement of how many investors were trading on the asset on that day.
The main takeaway is that if there is high trading volume, then the price of the asset is subject to magnified movements. If there is low trading volume within a day, then the price of the asset does not move as much.
By now, you understand what is a stock, stock exchange, market index, and how to read stock symbols.
You’re now ready for the upcoming blog about the analysis on Apple Inc. By understanding these basic terms of stocks, you are absolutely prepared to do your own research on any stock and on any stock exchange.
Why is this important?
It is important because the amount and in-depthness of your research directly determines your investment choices.
If you’re excited about it and want me to answer specific questions you have about Apple Inc, leave a comment down below! For more concise summaries on my blogposts, head to @LEINVESTS_ on Instagram!