How Well Do You Know Stock Market Lingo?
Take it straight from a millennial: Being a young stock market investor can feel intimidating. Many of us are just getting the hang of financial independence, and the thought of delving into the world of investing is no doubt daunting. As it turns out, investing in the stock market is actually quite approachable. Anyone can invest, and we can absolutely start small — we’re talking $5 small. Together with Robinhood, we’re here to equip you with knowledge (and confidence!) to get your feet wet with investing. We’ve created a brand new FREE online class Investing 101: A Millennial's Guide on How to Start Investing in the Stock Market. This free course, taught by millennial money expert Tonya Rapley, will teach you the fundamentals of investing in the stock market. You’ll learn essential terminology, investment options, and how to confidently buy your own stock on the Robinhood app — right from your phone. Check out the teaser below!
So, consider this article your pre-course homework: vocabulary! Familiarize yourself with the following investment terminology and you’ll already be making great strides toward being an informed and savvy investor. Let’s get to it.
WHAT’S A STOCK? A stock is essentially a piece of a company. Use this beach ball as an example. The beach ball symbolizes an entire company. Each slice of color represents a share. As the company, or in this case, ball, grows larger and is doing well financially, so does the value of your individual shares. The profit you make is the difference between what you paid for each share and what the share is currently worth in the market. Your investment isn’t guaranteed to grow over time, there’s also the chance that this beach ball can deflate - meaning the company can lose money and you can lose value in your individual shares.
WHAT’S A PORTFOLIO? Your portfolio consists of all of your financial assets (stocks, bonds, cash, etc). A portfolio can be held and managed by the investor alone, someone can manage it for you, or it can be held by a company who manages the assets for the investor.
WHAT ARE EXCHANGES? Exchanges are the markets where stock buyers and stock sellers meet. The largest exchanges in the United States are the New York Stock Exchange NYSE) and Nasdaq. Think of it similar to a shopping mall where you to go buy products from a variety of sellers. The U.K., China, Japan, and Canada are a few other countries that have their own exchanges.
WHAT’S A BROKER? A broker is a person or entity that can buy and sell stock from the exchanges. Stockbrokers are usually associated with a brokerage firm and handle transactions for customers.
Thanks to technological advancements, you no longer have to go into a physical brokerage office, or even talk to a broker on the phone to trade stocks in the market. An advisor is a good idea if you're purchasing large volumes of stock, or if you’d like to outline an initial investment strategy with a professional. Investment advisors and most brokerages do charge fees for their services and to place your trade in the market. But with Robinhood, you could literally purchase your first or next stock, by yourself, without any commission fees, before this class is over.
The Robinhood mobile app allows people to buy and sell stocks, certain cryptocurrencies (select states), ETFs, and options, all commission-free from anywhere you want!
WHAT'S A DIVIDEND? A dividend is defined as a payment made by a corporation to its shareholders. It’s essentially a reward given to shareholders for owning stock in the corporation. Sometimes these distributions are on a quarterly basis, other times they are annual, and sometimes they are a special event. Every company doesn’t pay dividends, and dividend payments can be made in cash or in the form of additional shares of stock.
WHAT’S THE DIFFERENCE BETWEEN A BEAR MARKET AND A BULL MARKET?
BULL MARKET: Market participants often refer to any period of rising stock prices as a “bull market,” but the commonly accepted definition of a bull market is any period of time when stocks have increased by 20 percent. This can apply to a certain sector of the market and not necessarily all of it.
BEAR MARKET: A “bear market” is the opposite of a bull market. Any time that stocks enter a period where they have declined by 20 percent, it’s commonly considered a bear market.
Want to learn more? Check out our brand new FREE class, Investing 101, paid for by Robinhood. You’ll learn the basics of investing in the stock market, VIP terminology, and how to confidently buy your own stock on the Robinhood app — right from your phone.
This article was made in partnership with Robinhood.
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Author: Maddie Bachelder