Common Share Trading Terminology You Should Know

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For many beginners to share trading, the language used can sometimes seem confusing, therefore a brief explanation of the basic terminology is required. If you’re in your early phases and still didn’t master all the terms, this guide will shed some light and make you more prepared for the next time you’ll read an article on an industry website or study some training material.

The basics

We must start with the “bid”, which is the price a buyer is willing to pay for a stock and the “ask”, the price a seller is willing to take for a stock, while the “spread” is the difference between them. You make a “market order” when you buy shares at the market price. On the other hand, a “limit order” allows you to enter the market only when the price reaches a level set by you.

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Alt-text: stock trading terminology

Traders use “technical analysis” to examine stocks through the use of metrics, indicators, past data, and other techniques to identify market trends. “Fundamental analysis”, on the other hand, examines the financial health and strength of a company to determine its share price, future value, and earnings expectations. “Volatility” represents how much a stock’s price rises or falls over a period of time and “volume” is the number of shares being traded in a particular time frame.

Some complex terms

One of the most important indicators for trading shares is the P/E ratio, or “price-to-earnings ratio”, which indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company’s earnings. Companies reward their shareholders through regular “dividends” when they receive parts of the profits based on the number of shares they hold.

“Earnings per share” or EPS, is another important indicator monitored by investors since it shows the company’s profit divided by the average number of outstanding shares. The “market capitalization” represents one measure of a company’s worth, calculated by multiplying the price of a share and the number of shares in the market at a given time.

Investors are also paying close attention to “Research and Development” or R&D, referring to the activities companies undertake to innovate and introduce new products or services. “CapEx” or Capital Expenditures represent purchases of assets that could be beneficial beyond the current tax year. On the other hand, “OpEx” or Operation Expenditures consists of those expenses needed for a business to operate on a day-to-day basis.