The capital market is not a place where you invest your money and expect a return without planning your moves. That’s why before investing your capital in the market you need to understand how the market works. In this article, we are going to discuss some of the most important terms you must know before you enter the capital market. These terms are also known as glossaries for the capital market. This will help you understand how the market works. It will help you to formulate the ideal plan for your next best investment. Below we are going to show you some of the important glossaries for your capital market journey.
Last trade price
The last trade price is the price at which the last matched trade took place for any given stock. It might sound a bit confusing. Let’s clear it through an example. For instance, let’s say, you head on over to your favorite online finance site and see that Apple, which you currently own, last traded for $581.00 per share. The “last trade price” implies that someone sold shares of Apple for $581 each, and someone bought shares of Apple for $581 each. Their sell and buy orders matched. Because of that, the trade was executed. This will help you keep track of your interesting stock.
The record date is the cut-off date when the shareholders are entitled to receive a dividend or distribution. Because of its connection to another key date, the ex-dividend date, the record date is relevant. A purchaser of the stock would not earn the dividend as the seller is entitled to it on and after the ex-dividend date. Before purchasing and selling dividend stocks, a company’s record date is a vital principle to recognize.
A mutual fund is an investment instrument that includes a mixture of stocks, bonds, or other securities. Mutual funds provide a low-cost entry point for institutional investors to gain access to professionally run portfolios. It is divided into several types of categories. Reflecting the kinds of securities in which they invest their targets for investment and the kind of returns they are aiming for. It normally charges annual fees (called cost ratios) and, in some situations, commissions, which can have an effect on their total returns. The vast amount of money goes into mutual funds in employer-sponsored retirement programs.
A broker is a person or firm that works between an investor and a stock exchange as an intermediary. Securities exchanges accept orders only from individuals or firms. They are the representatives of that exchange. The services of exchange members are required by individual traders and investors. Brokers provide the service. They’re also rewarded in different ways. Such as commissions, fees, or by the trade itself being charged.
Capital gain is the benefit from the sale of an asset such as securities, bonds, or real estate that one receives. It leads to capital gain as an asset’s sale price tops its buying price. That is the difference between the asset’s purchase price (higher) and its cost price (lower). Capital loss happens where the price of the cost is greater than the price of the transaction. When a capital asset is sold for less than the purchase price, a capital loss is incurred. As far as taxes are concerned, capital gains can be offset by capital losses and taxable income. This can be reduced by the amount of capital loss.
Earnings per share (EPS)
Earnings Per Share refers to the net profit of a company measured by the amount of outstanding common shares. It indicates how much money a corporation earns for each share of its stock. This is a commonly used metric for corporate value calculation. A higher EPS reflects higher profitability. As customers would pay more for the stock of a firm. If they conclude that the company has higher earnings compared to the share price. EPS is available in several forms, such as excluding unusual items or discontinued operations, or on a diluted basis.
Quote refers to the current trading price of a stock. Additional information and details, such as the high and low-security prices reported over the course of the trading day, can be presented in stock quotes. The stock quote can also signify a shift in the value of the security compared with the closing price of the previous day or the opening price of the current trading day. A stock quote could also be provided with analyst recommendations for given security.
When a company is doing well and their stock price is rising they offer again to sell more shares and gather more money. For several purposes, businesses execute secondary offerings. In certain cases, to fund its debt or make acquisitions, the company might simply need to raise money. In other situations, the investors of the firm may be involved in an offer to cash out their holdings.
Over the counter (OTC)
If you are making a trade with a company that is not listed in the stock market. It’s called an over-the-counter trade. OTC trading helps to encourage stock and financial instruments that investors may otherwise not have access to. Stocks that trade through OTC are usually smaller companies that are unable to satisfy the formal exchange listing requirements. Many other types of shares, however, also trade here. Stocks traded on exchanges are referred to as listed stocks. These stocks are referred to as unlisted stocks.
Initial Public Offering (IPO)
Initial Public Offering refers to the first time that a company offers its shares for trading in the stock market. Here you get to buy the share directly from the company. By selling shares via the primary market, IPOs provide businesses with an opportunity to obtain capital. For the founders and early investors, an initial public offering (IPO) is regarded as a way to exit. For private investors, it is assumed to have the highest return on investment.
An index is a benchmark of market performance. This is used by investors and portfolio managers in the stock market. Using a standardized metric and methodology, an index measures the market output of a basket of securities. An index in financial markets is also used to measure the output of an investment.
Liquidity refers to how fast a share can be turned into cash. For example, a share with high trade volume has high liquidity. Although tangible items are less liquid, cash is the most liquid asset. Market liquidity and accounting liquidity comprise the two primary forms of liquidity. To calculate liquidity, current, rapid, and cash ratios are most widely used.
Trade Volume refers to the number of shares traded on a specific day. Volume may be a measure of market strength. Growing markets are generally perceived as strong and safe as volume increases. The trend is gathering strength to the downside as prices decrease on rising volume. Looking at volume trends over time will help to get a sense of the strength or confidence in individual stocks and whole markets behind advances and declines.
Exchange-traded funds (ETF)
These mutual funds are traded like shares in the stock market. ETF is bought and sold and their prices fluctuate during the day. This is different from mutual funds that only trade once a day after the market ends. All types of assets, including stocks, commodities, or bonds, may be included in ETFs. ETFs have low-cost ratios and fewer broker fees than individual stock transactions.
The dividend refers to the profit shared by the company to its shareholders. A stock dividend a dividend paid to shareholders in the form of additional shares in the company. Shares distributed as dividends are not taxed until the shareholder sells the shares. Although stock dividends dilute the stock price like stock splits, they also do not affect the company’s valuation.
In the above article, we have discussed a few of the glossaries for the capital market. An investor must know these before entering the market. But you must remember these glossaries for the capital market are not all and there is more. You can never be too prepared for something. That’s why you should always keep a positive mindset and do your study e before investing. Hope this article will help you to create a better understanding of how the capital market works. Helping you on your way to success. For further information and more glossaries for the capital market, you can visit our website.