Operating on the stock market: 10 terms you should know
On the stock market it is very common to come across terms that define part of the operations. These are some of the terms you should know if you want to operate on the stock market.
1. Bear market: Expression used to define a market in which prices fall.
2. Bid-ask: Supply and demand prices. Bid is the highest price that the buyer is willing to pay, and ask is the lowest price at which the seller is willing to sell. The difference between the two is called spread, price range, margin or price differential, which is a good indicator of a security’s liquidity.
3. Broker – Dealer: Brokers are intermediaries who buy and sell for the account of their customers, while dealers are also authorized to trade on their own.
4. Bull market: Expression used to define a market in which prices rise.
5. Split: This involves splitting the nominal value of a company’s shares in a given proportion. In other words, the number of shares is multiplied and their market price is divided in the same proportion. In general, this operation seeks to provide greater liquidity to a company’s shares; even though the operation has no impact from the financial point of view, it probably has some psychological effect due to the reduction in the price of the shares.
6. Scrip dividend: A shareholder remuneration mechanism that involves paying a dividend to the shareholders entitled to receive it by distributing new shares instead of cash. These shares are issued through an increase in paid-up capital (i.e. against reserves), so the company does not have to raise more money on the market or from its shareholders, who in turn increase their shareholding with no additional outlay. For a company to be able to perform this capital increase against reserves, it has to be authorized by the shareholders through a resolution of the General Shareholders’ Meeting. Through this capital increase each shareholder receives a subscription right for each share they hold. This subscription right can be exchanged for the shares or traded on the stock market.
7. Spread: In general, the difference between the supply and demand price for a given security. It can be used as an indicator of a security’s liquidity (lower spreads indicate more liquidity), although it can also be influenced by other factors.
8. Stop: Type of stock market order that limits the order up to a certain price set by the principal-customer.
9. Trader: A specialist who operates on the stock market with short-term strategies, using patterns to predict the future. Trading involves buying and selling assets in the very short term. It is only recommended for expert investors. It involves observing what happened in the past with the aim of predicting what will happen in the future by handling random results.
10. Yield: Dividend earnings of a listed stock.
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