The stock market can be difficult to understand especially for beginner investors. There is just so much to learn and if you are already eager to take the plunge, chances are that you do not have enough time, too. Hence, there is a need for those terms to be presented in a concise and simple way.
The stock exchange is a place where different financial instruments are traded. There are many stock exchanges, with virtually every country having its own. For example, in Italy, there is the Borsa Italiana. In Germany, there is the Frankfurt Stock Exchange. However, the largest and most well-known are the New York Stock Exchange (NYSE) and the NASDAQ both in the U.S. Publicly traded companies are represented on stock exchanges with tickers, which are one to three-character alphabetic root symbols, and categorised into specific sectors.
Sectors are groups of companies in the same or similar businesses and there are 11 of them. They include Industrials, Financials, Energy, and Technology. Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) are two examples of companies in the Technology Sector.
From your research, analyses, and intuition, you can think a company will increase in value sometimes in the future. So, you might want to buy its shares. In such an instance, when you do, you are said to be going long on it. Conversely, if you think the company will be worth less, you can decide to sell or go short instead.
The ease with which you are able to buy and sell the shares of companies is called liquidity. A similar term is volatility which describes how fast stocks move up and down in price. There is a connection between the two in that liquidity has a big impact on how volatile share prices are. The less liquid stocks are, the more volatile they usually are.
A company’s market capitalisation is what investors think it is worth in monetary terms. As a result, it is not static. It changes from time to time based on their sentiment. When more and more investors are buying its shares, its price increases. And the higher its share price, the higher its market cap.
At this point, you should also know the difference between authorised shares and public float. Authorised shares are the total number of shares that the company can trade. Public float, on the other hand, is the number of shares excluding insiders’ shares that the public can trade.
A privately-held company can also decide to be listed on a stock exchange in order to raise money to expand its operations, or for other reasons. This is known as Initial Public Offering (IPO). To be able to trade its shares, you need an account with a broker, an individual or corporation, that will buy or sell the company’s shares on your behalf in exchange for a fee. Finally, while the discussion here is not, in any way, exhaustive, it can, however, serve as the foundation on which your subsequent knowledge about the stock market can be based. Hence, welcome to the exhilarating journey of stock market investing and do not forget to enjoy the ride!