Understanding how the investment world works is difficult without an understanding of its terminology. A finance major might see investment terms as basic knowledge, but financial jargon is confusing to everyone when investment decisions are made in fast-moving markets. Here are some industry terms to guide your investment strategies with:
The Ask and Bid Prices
The “ask” price is a price that an asset sells for while the “bid” is the price at which it is bought at.
Buying and selling are identical to a degree, for you can only sell if someone buys, yet the difference between the ask and bid prices establish the cost of your transaction via what’s called “a spread.” Spreads, which show the difference in ask and bid prices, are what pay your broker. Many brokers earn commissions by selling at prices higher than what the market quotes—while buying at prices below market levels.
The Broker and Your Blue-Chip Stocks
A true “broker” is a financial firm that takes your investment order and fills it on your behalf.
Brokering is complicated, for it requires financial agencies to often use their own money to complete your trade through. Brokers encourage their clients to invest into the most profitable, liquid and dividend consistent “blue-chip stocks.” Blue-chip stocks are “the cream of the crop” in equity investing.
Bullish and Bearish Markets
A “bear,” as he relates to the investment world, is someone who takes a selling position for an asset or its market.
“Bulls” buy equity up—in hopes that prices are set to rise even higher. A market that trends downward over a period of one or more months is bearish. A market that consistently trends upward with higher prices is a bullish one. Investors track bearish and bullish sentiment as a way of refining their investment decisions.
A stock company with dividends gives its shareholders scheduled payments apart from their stock ownership. Dividends are paid out via a yield percentage that tells us how much a dividend is worth based on its stock’s-full value. A 100-dollar stock, for example, with a yield of 7% will give a shareholder $7-per share either quarterly or annually.