How to Buy Stocks – A Beginners Guide

A stock is a representation of a company’s equity. When a company wants to raise capital, it issues stocks to the public. It is the aggregation of the total stocks owned by one individual that inform their shareholding of the company.

A share is an indivisible unit of capital that expresses the ownership relationship between a shareholder and a particular company, mutual fund, REITs or limited partnership. A share indicates a portion of ownership (claim) that one has on a company or fund.

Dividend refers to the portion of the company’s profits that is distributed to its stockholders. It can be on a quarterly or annual basis.

A bull market is an economic condition where the stock markets are in an extended period of consistent increase in stock prices.

A stock market is said to be bearish if it is involved in extended periods of continuous price decrease of the stock prices.

A stock exchange is an institution or a platform where shares and stocks and a host of other money market instruments are traded.

The return on investment is the profit you make from trading in or investing in shares and stocks of a particular company. It often comes from selling the investment at a higher price than was originally bought or benefiting from dividends and other profit-sharing schemes as a result of owning and holding onto a particular investment.

A broker may be a person or entity that engages in the buying and selling of different types of investments on behalf of other individuals or entities at a fee (or commission).

Day Trading is the practice of buying a money market investment product and selling it as soon it reports price increase or loss, within the same day. Traders engaged in day trading are referred to as “day traders” or “active traders”

Arbitrage is the act of buying and selling security at different stock exchanges or markets with varying prices. If, for instance, stock ABC sells at $11 on one exchange and $11.75 on the other, arbitraging involves buying from at the low price exchange and profiting by selling it at the higher-priced exchange.

A stock index is a statistical measure of the change in the stock and securities market. It comprises a hypothetical portfolio of different companies whose change in prices is calculated to determine market performance.

The Initial Public Offering refers to the sale of company stock to the public for the first time. It is the act of taking a company public and is highly regulated by such financial regulators like the SEC in the USA and FCA in the UK.

Options are derivative financial instruments whose price is based on the value of their underlying tradable security like shares and stocks. They are contracts that give the holder an option to buy or sell the underlying asset at a later date. Unlike futures, an options contract holder has the choice to buy/sell or not.

This is an options contract that gives the holder an option to buy the underlying asset before the expiry date.

This option gives its holder the choice of selling the underlying asset before its expiry date

A mutual fund refers to a company that pools funds from different investors and invests these funds in stocks, bonds, and other financial market securities. They then distribute the capital gains from these invests to their members.

The process through which stocks for companies that are not listed with accredited stock exchanges like the NYSE are traded. It is a broker-dealer network for unlisted stocks for companies that do not meet listing requirements set by the organized exchanges.

A stock is said to be overbought if it is traded excessively over a short period of time and at unjustifiably high prices.

A stock is said to be oversold if it is consistently traded below its true value.

Also referred to as the offer or asking price, this refers to the lowest price that the seller will take for a stock.

Bid price refers to the maximum price that a buyer is willing to pay for a stock.

In the stock trading context, Volume refers to the number of shares that change hands within a given period of time, be it a day, month or annually. It is trading/investment indicator where rising trade volumes point to a healthy stock while dwindling volumes are indicators of investor pessimism towards a stock.

Refers to the statistical measure of the change in price of a stock over a given period of time. It is a measure of the rate and the time it takes for a stock price to move from high to low and how long it remains within a certain price range. The higher the volatility, the higher the risk.

This refers to the highest closing price recorded by a given stock in the last 52 weeks.

This refers to the lowest closing price that a particular stock recorded in the last 52 weeks.

The bid-ask spread refers to the difference between the lowest price that a seller is willing to take for their stock and the highest price that a buyer is willing pay for the stock. It is the difference between the quoted ask and bid prices.

A market order is an instruction by an investor to the broker or brokerage platform asking them to buy/sell a stock or any other security at the best price available at that moment. It is often issued when an investor wishes to enter or exit the market quickly and at the prevailing rates.

A limit order is an order that triggers a sale or buy when a predetermined or better price is met. For a buy limit order, the buy order is executed once the set limit price or a better price is triggered. The sell limit order on the hand triggers the sale of stocks if the limit price or better price is hit.

Also referred to as a stop loss order, it is an order that triggers a buy or sell action once a predetermined price level is hit. It is designed to help you minimize possible loss on a given trade should the markets move against your bet.

Take profit is a type of limit order dictating the price level at which the broker or brokerage platform is to close a trade for profit.

Capital gain refers to the value rise of a tradable financial instrument that makes its selling price higher than the buying price. It can also be referred to as the profit realized from liquidating a capital investment like stocks.

An ETF is a collection of many tradable instruments like bonds, stocks, and commodities. These are listed on the exchanges and traded like ordinary stocks.

The debt-to-equity (D/E) ratio is a financial ration tool used to measure the financial health of a company by gauging value of its equity in relation to debt. It is achieved by dividing the company’s total liabilities in relation to its shareholder’s equity.

This is an investment strategy where the investor only buy shares that have consistently paid out high dividends in the past or others with the fastest dividend rates. Dividend investing strategy advocates are more interested in how much a shares pays in dividends than its price fluctuations.

Growth stocks refers to the stocks of companies that are expected to grow at a faster rate than the industry average and report consistent and sustainable cashflows. The company sales and revenues are also expected to increase at a faster than that of an average company in the same industry.

These are also referred to as micro-cap or nano-cap stocks and refers to the stocks of relatively small companies valued less than $5 and only trade via the Over-The-Counter markets.

A blue chip refers to a nationally recognized and financially sound company with a long and stable record of consistent growth. It is company whose financial might and nature of operation make it well suited to face turmoil and remain profitable in the uncertain economic conditions..

Short selling is a trade/investment strategy where the investor is banking on the decline of the shares of a particular company. They therefore borrows these shares, sells them at the current market price and buys them back after they lose value, effectively profiting from the price difference.

Yield refers to the profit/earnings generated from investing in a particular stock or market instrument over a given period of time and is expressed a percentage of the stock’s market value, face value or as percentage of invested amounts.

Capital stock, also referred to outstanding shares, refers to all the regular shares issued by a company and held by all its shareholders including the restricted/locked-in shares held by company insiders, executives, and institutional investors. The number of capital stock is used in calculating key metrics including cash-flow per-share and earnings per share.

EPS refers to the monetary value, the profit or earnings attributable to each outstanding shares held by a company. It is a financial ratio that is arrived at by dividing the company’s profit by its outstanding shares of the common stock.

Also referred to as Price-to-earnings ratio, PER is a financial metrics tools used to check if a company’s shares are over/undervalued by dividing the shares current market price with its earnings-per-share.

A company’s flat refers to the number of regular shares issued to investors that are available for trading. The float shares figure is arrived at by subtracting the locked-in shares held by company insiders and executives from its capital stock.

Gap up stocks refer to company stocks that open the day trading at relatively higher prices than their previous day’s closing price. This is often attributed to the after-market trading activity.

Gap down stocks refers to company stocks that open the day trading at relatively lower prices that the previous day’s closing price. For instance if a company stock closes the day trading at $50 but opens the following day trading at $45, it is said to have a 5-point gap down.

Stock buyback, also referred to as share repurchase, occurs when a publicly listed corporation uses a part of its revenues to buy back its shares from the marketplace. The move effectively reduces the number of company shares in circulation, which translates to an increased share price.

HOLD is a financial recommendation issued by a qualified financial institutions or financial analyst advising investors/traders not to buy or sell a particular stock. It is a no-action situation where long position traders are advised not to sell and others investors advised not to buy into the stock.

This refers to the upper-most price level that a particular stock or any other security reaches but doesn’t exceed due to dwindling number of buyers and an increasing number of sellers.

Is a branch of economics that’s concerned with the study of how the economy and different large-scale markets are structured, how they behave, and how they perform.

Relative Strength Index is a technical momentum indicator used in market analysis to determine if a stock is overbought or oversold by measuring the magnitude of a recent bullish or bearish price run. It has a scale of 0-100 where RSI readings of 70+ indicate a stock is overbought while an RSI reading below 30 is an indicator of an oversold security.

Moving Averages is a statistical calculation that is specially designed to identify the arithmetic mean of a given number of data sets or range of prices calculated over a given period of time. Each of these data set or price range is created by the average/mean price for that subset. For instance, a single data point on a moving averages scale may represent the average stock price for a day or trading session.

Bollinger Bands are a technical indicator tool characterized by two statistical carts that run alongside each other indicating the changes in prices and volatility of a financial instrument like stock or commodity over a given period of time.

Fibonacci retracements refer to two horizontal lines that use the Fibonacci numbers to measure the percentage of price retracement in a bid to indicate where the resistance and support are most likely to occur.