Stock Market Terms: 15+ Explained for Beginners 📈

Summary

The video explains key stock market concepts in a straightforward manner, including bull and bear markets, securities, exchanges, brokers, shares, and terms like margin, dividends, and P/E ratio. It clarifies the roles of the SEC, brokers versus brokerages, and the difference between blue chip and penny stocks. The video also covers the significance of ticker symbols, bid-ask spreads, and the basics of index funds. This comprehensive guide is perfect for beginners looking to understand the essentials of investing and market operations.

Takeaways

• 📈 A bull market is when prices are rising, indicating an overall trend of increasing prices.
• 📉 A bear market is when prices are decreasing, indicating an overall trend of decreasing prices.
• 🗣️ You can be bullish or bearish on individual stocks, sectors, or the entire market based on your sentiment or investments.
• 📊 Securities are tradable financial assets, including stocks, bonds, CDs, and options, regulated by the SEC.
• 🏛️ An exchange is a market where securities are bought and sold, like the NYSE, NASDAQ, and Hong Kong Stock Exchange.
• 🕵️ The SEC (Securities and Exchange Commission) enforces laws against market manipulation and regulates public sales of securities.
• 🤝 A broker is an individual or firm acting as an intermediary for investors and exchanges, while a brokerage is the firm providing this service.
• 📄 Shares represent units of stock, and outstanding shares refer to all authorized shares held by investors.
• 🔄 The float refers to the number of shares available for trading, excluding those held by insiders.
• 📈 Long positions profit from stock price increases, while short positions profit from stock price decreases.

Q & A

What is the primary definition of a bull market?

A bull market is a period when the overall trend of increasing prices exists, indicating that stock prices are rising and investors are generally satisfied with their returns.

What does it mean to be bullish on a stock or sector?

Being bullish on a stock or sector means you expect that the prices will rise and you are optimistic about its future performance.

What characterizes a bear market?

A bear market is characterized by an overall trend of decreasing prices, where investors often experience losses as the value of their investments declines.

How can investors express their bullish or bearish sentiment besides verbal expressions?

Investors can express their bullish or bearish sentiment by making financial bets, such as buying stocks (being long) to profit from price increases or short-selling stocks (being short) to profit from price decreases.

What are securities and can you give examples?

Securities are tradable financial assets, examples include stocks, bonds, certificates of deposit (CDs), and options.

What is the role of the Securities and Exchange Commission (SEC)?

The SEC is a U.S. federal government agency that enforces laws against market manipulation and regulates public sales of securities.

What is the difference between a broker and a brokerage?

A broker is an individual or firm that acts as an intermediary for investors and exchanges. A brokerage is the service or business that provides the platform for trading securities.

What are shares and how do they represent ownership in a company?

Shares represent units of stock that an investor can purchase, which in turn provide fractional ownership of the company. The ownership is proportional to the number of shares held compared to the total number of shares issued by the company.

What is the difference between outstanding shares and float?

Outstanding shares are all shares currently authorized by a company and held by investors, while float refers to the number of shares actually available for trading, excluding those held by insiders.

What is the P/E ratio and why is it important in stock evaluation?

The P/E ratio, or price-to-earnings ratio, compares a company's share price to its earnings per share. It helps investors determine if a stock is valued expensively or cheaply relative to its earnings.

Outlines

00:00

📈 Understanding Bull and Bear Markets

A bull market signifies an overall trend of increasing prices, making investors happy with their returns. The term can apply to the entire market, individual stocks, or sectors. Conversely, a bear market indicates a trend of decreasing prices, leading to losses for investors. Investors can express bullish or bearish sentiments verbally or through financial actions like going long (buying) or short (selling).

05:00

🔄 Key Financial Terms: Securities, Exchanges, and the SEC

Securities are tradable financial assets, including stocks, bonds, CDs, and options. Public sales of securities are regulated by the SEC (Securities and Exchange Commission), which enforces laws against market manipulation. Stock exchanges, such as the NYSE and NASDAQ, are markets where securities are bought and sold. The SEC was established post-1929 crash to protect investors.

10:01

🤝 Brokers, Brokerages, and Shares

A broker is an intermediary between investors and exchanges, facilitating stock trades. Popular brokers include Robinhood and Fidelity. Shares represent units of stock, giving investors fractional ownership of a company. Outstanding shares are all shares held by investors, while the float refers to shares available for trading. Long positions profit from stock increases, while short positions profit from decreases.

15:03

📊 Stock Market Fundamentals: Blue Chip Stocks and Penny Stocks

Blue chip stocks are shares of well-established, reputable companies like Nike and Apple, often viewed as lower-risk investments. Penny stocks, trading under $5 per share, typically come from smaller companies and are less regulated. They often trade on over-the-counter markets and can be delisted from major exchanges if their share price remains low.

🔢 Understanding Ticker Symbols and Market Prices

Ticker symbols are unique abbreviations for companies on exchanges, such as AAPL for Apple. The bid price is the highest price a buyer will pay for a security, while the ask price is the lowest price a seller will accept. The spread is the difference between these prices, with a smaller spread indicating greater liquidity. Market orders can be filled within the bid-ask spread.

💳 Margin, Dividends, and Index Funds

Buying on margin involves borrowing from a broker to increase purchasing power, though it's risky. Dividends are distributions of a company's earnings to shareholders, often quarterly. The dividend yield represents the annual dividends per share divided by the current share price. Index funds are pre-made portfolios of stocks or bonds, offering low expenses and diversification.

📈 Key Metrics: Earnings and P/E Ratio

Earnings per share (EPS) is calculated by dividing a company's profits by the number of outstanding shares, indicating profitability. The price-to-earnings (P/E) ratio compares a company's share price to its earnings, helping investors assess if a stock is over or undervalued. It's a useful indicator but should be used alongside other metrics.

Keywords

💡Bull Market

A bull market refers to a period where prices are rising or expected to rise, leading to a general sense of optimism among investors. This term is crucial in the video as it explains the state of increasing prices, where people are typically happy with their returns. An example from the script is the mention that a bull market means an overall trend of increasing prices.

💡Bear Market

A bear market is characterized by a decline in prices, often leading to pessimism among investors. The video contrasts this with a bull market, explaining that during a bear market, investors often experience significant losses over time. It highlights that in a bear market, the average individual entering the market is likely losing money.

💡Broker

A broker is an individual or firm that acts as an intermediary between investors and exchanges. The video explains that brokers are necessary for trading stocks, as individual investors cannot directly buy shares from an exchange. Examples include modern brokerage platforms like Robinhood and Fidelity.

💡Securities

Securities are tradable financial assets, including stocks, bonds, and options. The video clarifies that when someone refers to trading securities, they are usually talking about stocks but may also include other financial instruments. The term is essential for understanding what investors are trading in the markets.

💡Shares

Shares represent units of stock in a company. The video describes how buying shares means purchasing a portion of a company, giving investors fractional ownership. This term is key to understanding how stock ownership works and is linked to concepts like outstanding shares and float.

💡Margin

Buying on margin involves borrowing money from a broker to purchase more securities than one could with available cash. The video warns that while this can increase buying power, it is generally not advisable for average investors due to the risks involved.

💡Dividend

Dividends are payments made by a company to its shareholders, usually derived from profits. The video explains that dividends provide regular income to investors and can be an important factor in investment decisions, particularly for those seeking steady returns.

💡Index Fund

An index fund is a portfolio of stocks or bonds designed to match or track a particular market index. The video highlights that index funds offer diversification and lower volatility, making them an attractive option for passive investors looking for stable returns.

💡Earnings Per Share (EPS)

EPS is a measure of a company's profitability, calculated by dividing net earnings by the number of outstanding shares. The video mentions that a higher EPS indicates better profitability, which can positively influence the stock price and is a crucial indicator for investors.

💡Price-to-Earnings (P/E) Ratio

The P/E ratio compares a company's current share price to its earnings per share, helping investors gauge if a stock is over or undervalued. The video explains that while the P/E ratio is a useful tool, it should be considered along with other factors for a comprehensive evaluation.

Highlights

Definition of a bull market: an overall trend of increasing prices.

Bull market sentiment can apply to the entire market, individual stocks, or sectors.

Bear market: a time when there's an overall trend of decreasing prices.

Sentiment in the market can be bullish (positive) or bearish (negative), and investors can act accordingly.

Difference between being bullish or bearish in sentiment vs. actual investment positions (long or short).

Securities: tradable financial assets including stocks, bonds, CDs, and options.

The SEC (Securities and Exchange Commission) regulates public sales of securities.

Stock exchange: a market where securities are bought and sold (e.g., NYSE, NASDAQ).

Difference between a broker and a brokerage: a broker acts as an intermediary, while a brokerage is the firm facilitating trades.

Shares represent units of stock, providing fractional ownership of a company.

Outstanding shares: all shares currently authorized and held by investors.

Float: the number of shares available for trading, excluding insider holdings.

Margin: a loan from a broker to increase buying power, which involves risks.

Dividend: distributions made by companies to their investors, often quarterly.

P/E ratio (price to earnings ratio): a valuation metric comparing share price to earnings, indicating whether a stock is expensive or cheap.

Index fund: a portfolio of stocks or bonds representing a specific market index, offering diversification and lower volatility.

Transcripts

Well, I'll give you the definition right here in a second,

but I'll tell you what,

one of my favorite definitions I've ever heard

is a bull market is when prices are bull,

as in bull S-H blank blank.

You know what I'm talking about.

But the actual definition here, guys,

a bull market means that an overall trend

of increasing prices exists.

So basically that is a time period when prices are going up

and people are generally happy

with their returns in the market.

Now, saying that the market is bullish,

that could be referring to the market overall,

which would be all of the stocks,

or you can say this about an individual stock or sector,

which is just an area of business where you could say,

"Okay, I am bullish."

So for example, I could say,

I am bullish on genius brands,

that's one of the stocks in my portfolio,

and then I could say maybe I'm bullish

on a particular industry.

There's not really much of that

that you're bullish on right now to be fully transparent,

but that is how you would use that particular lingo.

Now, on the other hand,

I'm sure you've heard of the other side of the fence here,

which is the bear market.

And a bear market is basically when there's an overall trend

of decreasing prices.

So that's a time when people are putting money

into the market and then maybe six months later,

seven months later, they've lost 20, 25, 30%, 40%.

It's a time when the average individual entering that market

is in fact losing money.

Not to mention as well here, guys,

in the same way that you can be bullish

on a particular stock, you can also be bearish.

And that would apply to stocks as well as different sectors

or the entire market as a whole.

So if, for example,

you were looking at a particular stock and you said,

"I don't understand why the price is so high.

I am going to be bearish on that stock."

Now, there's two different ways

that you could be bullish or bearish on a particular asset.

You could be bullish with just your dialogue

or bearish just by talking about it,

and that's something called your sentiment

or feelings towards the stock.

But then you can also put your money where your mouth is

and either be bullish, which means that you're long a stock

or you're bearish, which would mean that you are short.

So it's kind of the situation here where verbally,

you could be bullish or bearish,

and then you can put your money where your mouth is

and do a bullish or a bearish bet.

Most investors, retail investors stick to bullish bets

because short selling is quite complicated.

But obviously as we've heard about

in the financial market news lately,

short-selling is quite a popular activity

among the larger investors.

So moving on here, guys,

another term that used to just confuse me wildly

is securities.

A security is a tradable financial asset.

So here's examples of securities, stocks, bonds, CDs,

which is a certificate of deposit, and options.

So if you ever hear somebody saying,

"Oh, okay, I'm trading securities,"

they're usually talking about stocks,

but it's oftentimes one of those things listed here as well.

And also, guys, not just to mention here as well,

public sales of securities are regulated by the SEC,

which is the Securities and Exchange Commission.

The next one to cover here, guys, is exchange.

Another word you hear about quite often

and often times what they're talking about

is a stock exchange.

This is simply a market

where securities are bought and sold.

Similar to way back in the day

where people would go to a market

to swap their beans for corn

and different goods that people had,

it's just a market where there's an exchange of items.

In this example, here,

it's going to be those securities that we just talked about.

So examples of exchanges

include the New York Stock Exchange,

the NASDAQ and the Hong Kong Stock Exchange.

There's also different, smaller exchanges out there

where penny stocks trade.

However, those are oftentimes viewed

as less desirable markets.

Moving on here, guys,

now we'll talk more about the SEC

just because it's good to know who is out there

as the watchdog for our financial markets.

The SEC or the Securities and Exchange Commission

is an agency of the US federal government.

Now, this was founded

after the great Wall Street crash of 1929.

And the primary purpose of the SEC is to enforce the law

against market manipulation.

Now, I will tell you why there's a good handful of people

that would probably disagree with that definition there

at the bottom in terms of what the SEC is actually doing,

but I'm just coming out, you guys, with the definitions here

of what they are in fact supposed to be doing

on your behalf.

Now, the next term we're gonna come across here is a broker

and then there's something else called a brokerage.

Now, a lot of people still are just unaware

of the fact that there is a difference between these two

and what the difference is, so we're going to cover it.

Well, first of all, starting with a broker,

this is an individual or a firm

that acts as an intermediary for investors and exchanges.

So at the end of the day,

if you wanna go out there and trade stocks, you, yourself,

can't go running into the New York Stock Exchange office

and buy shares yourself, you do have to go through a broker.

They're basically your stock dealer.

Now, an exchange accepts orders from members only.

So a broker works on behalf of individual investors.

So common examples today of brokers

would be Robinhood, Webull, Fidelity, M1 Finance, et cetera,

all names that I'm sure many of you have heard of.

Next up let's cover the term shares.

Well, shares represent units of stock

when you actually purchase a stock.

So through the IPO process,

companies decide to issue stock in order to raise capital.

And I just did a full video talking about IPO investing.

If you're curious about how that actually works,

I'll throw a card up in the corner.

So individual investors can purchase shares of a stock

in exchange for fractional ownership of a company.

So basically, shares are units of the stock.

If you have 10 shares, you have 10 units of that company,

and that ownership is proportional

to however many units or shares of that company

exists out there in the world.

Next up, we have another term you'll come across

called outstanding shares.

And no, these are not the shares

that have done a really good job

at being units of a company, that's not quite the case here.

This refers to all of the shares currently authorized

by a company and held by investors.

So what we were just talking about earlier,

how your number of shares you own

gives you proportional ownership

based on the total number out there.

Well, this outstanding shares figure

is going to tell you how many shares,

authorized shares of the company are out there.

And then another term that you'll come across

in this neighborhood is float.

And that refers to the number of shares

actually available for trading.

Because a lot of shares are owned by insiders,

so you can't always look at outstanding shares,

you gotta look at the float to see,

okay, this is the actual pool of shares

currently available for trading.

Now, as mentioned earlier,

talking about bull and bear markets,

we talked about being long and short.

That's where you actually say,

"Hey, I believe this company is going to go up or down,

and I'm putting my money where my mouth is

and I'm hoping to make a profit in the process."

So long refers to a situation

when an investor believes they will profit

on a stocks increase, whereas short refers to a situation

where an investor believes they will profit

on a stocks decrease.

So I'm sure we've heard about short sellers out there.

Those are people who are betting

against individual companies.

They're looking to make money as that share price falls.

So another term that you're going to hear oftentimes

is something called blue chip stocks.

And these are going to be shares of companies

that are well-established, possess a strong reputation,

and generally pay dividends.

Now, that's not always the case,

and a perfect example being Amazon,

a lot of people refer to that as a blue chip stock,

but they do not in fact, as of this video, pay a dividend.

So right there, you have a couple of examples,

that would be Nike, Apple, Amazon, and Walmart.

They're large durable, well-respected,

and they tend to be viewed as a lower-risk investment

into the stock market.

On the other hand, we also hear about penny stocks,

which are from smaller companies typically,

and a definition of a penny stock

is actually any stock that trades under $5 per share.

So if you ever hear someone talking about a penny stock

and it's like $3.55 a share,

and you're confused because you're like,

"That's more than a dollar,"

well, there you go, now you know the answer.

That's what that is right there, guys.

So penny stocks typically do not trade on major exchanges

and they often end up on the over-the-counter markets.

They're less regulated and just a less desirable place

to be putting your money overall.

And the reason being

is because many of these large exchanges

have listing requirements, one of them being

that you have to maintain a price of $5 or more per share.

So if a company has a low share price

for a long period of time,

they can risk something called the D listing,

which is where they get the boot from the exchange,

and they have to go to the OTC markets,

which is just a crappier place to be.

Not gonna be nearly as many people participating

in looking to buy shares over there.

So the next piece of information here, guys,

is called the ticker symbol or the stock symbol.

This is a unique abbreviation

that identifies a company listed on a particular exchange.

So just for example here, guys,

the company Apple is symbol AAPL,

Netflix is going to be NFLX,

and Facebook is ticker symbol FB.

It's literally just an identifying marker.

Whereas in the past,

if you were calling up your broker on the phone, you'd say,

"Hello, I'd like to buy 10 shares of AAP or APPL."

Actually, it is AAPL, I believe that might be a typo there.

But double-check before you actually purchase.

But irregardless, that would be the process.

You call them up, you give them the symbol,

and then that is how

they would process that transaction for you.

Moving on, this gets a little bit more complicated,

but it is good to know,

and it's called the bid versus the ask

as well as the spread.

So the bid is something related to the price.

And this refers to the highest price

a buyer will pay for a security.

If you think about an auction,

this is somebody bidding on that auction.

The ask price refers to the lowest price

a seller will accept for the security.

So the person bidding is looking to buy,

the person asking is looking to sell something

that they already have in a marketplace via this exchange.

The difference between these two prices

is known as the spread, and the smaller the spread,

the greater the liquidity of the given security.

So basically,

if there's a ton of people trading a particular asset,

the spread might be half a cent.

Where someone's looking to sell for $1.70,

and someone's looking to buy for $1.75.

But in a thinly traded market,

you could have a really wide spread

because no one's really selling the asset,

where someone's looking to bid $1.20,

but the lowest ask is $1.80.

The issue being, if you were to place an order,

your order could be filled in any range there,

meaning you don't know what price

you're actually going to pay.

The next term to know here is called margin

or buying on margin.

And this is simply when you have a loan from a broker

in order to increase your buying power.

Generally not a good idea, not something that I use myself.

I do take advantage of portfolio, line of credit,

but I do not use it for buying additional assets

in the markets.

But just be aware that this does exist,

and this is what it's called.

Every brokerage out there has their own terms and agreements

with, as far as it goes to margin.

For example, two to one margin

would mean that you could invest double what you have

in your account.

So if you had a hundred grand,

they would loan you another 100,000 at a set interest rate

to basically give you more exposure

to those stocks or securities.

Another term to be familiar with here, guys,

is called a dividend.

And this is simply distributions

that are made by some companies to their investors.

Now, it's important to note here

that companies are not obligated to pay dividends

and they can stop paying them at any point in time.

However, it's not often desirable for them to do that

because a lot of these companies

don't have too much going for them in terms of growth

because they've already become so large.

So issuing a dividend oftentimes is the main thing

keeping people sticking around.

So it's basically money being handed to you

typically on a quarterly basis

to reward you for owning the stock,

and they're sharing a portion of their earnings.

So there's a lot more information in this, guys,

in my video on dividend investing for beginners.

I'll throw that up in the corner

if you guys wanna check that out after.

And then the dividend yield

is the annual dividends per share

divided by the current share price.

That tells you at a specific point in time,

what percentage of your investment you would earn back

in the form of dividends over the next year?

Another key term to understand here, guys,

is something called an index fund.

And this is simply a portfolio of stocks or bonds.

So basically instead of going out there

and picking individual stocks,

many people choose to invest in a pre-made basket

known as an index fund.

And these typically feature low expenses

and lower volatility

due to the fact that you are diversified

and investing in a passive manner.

I also did another video recently

talking about how to research an index fund or ETF.

If you guys want to check that out,

there's going to be a card up in the corner,

if you wanna check it out at the end of this video.

The next term to cover is something called earnings,

or this is often called EPS,

which is the earnings per share.

This is calculated by taking profits

divided by the outstanding shares.

And profits is going to be

where you have revenue that comes in

minus expenses gives you the profit

EPS is taking all of those earnings

and dividing it by the number of shares,

telling you per shareholder,

this is how much that company earned,

and positive or higher EPS typically is a sign of strength

as it denotes higher profitability,

which can oftentimes lead to an increase in the share price.

So EPS is a very important indicator

that a lot of people follow

when they are investing in stocks.

The last term we're gonna cover here, guys,

is called the P/E ratio or the price to earnings ratio,

which is one of the ways

that people try to evaluate stocks in the market.

Now, there's no end all be all out there, guys,

in terms of one indicator that you can look at

that's gonna tell you everything about the markets,

but the P/E ratio is a decent indicator

in your portfolio of tools.

Basically what it looks at is the ratio

between the price or the share price

relative to the earnings that company has,

and it gives you an idea of

if that company is expensive or cheap

relative to their earnings.

So typically speaking, a higher P/E ratio could indicate

that a price is a little bit expensive for a stock

and a lower P/E could indicate that it is cheap.

However, every industry out there

or different segment of business

has their own normal level for a P/E ratio,

that is why you can't simply just look at a P/E ratio

and say, "Oh, that's cheap," or, "Oh, that's expensive."

But it is a good indicator to know,

and definitely one for further research.

So anyways, guys, that is going to wrap up this video.

I hope you enjoyed it.

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And as always, guys, I hope to see you in the next.