Stock Market Terms
Broker – A licensed stock trader. Brokers usually take a percentage of the trade as commission. Modern online brokers (like E-Trade) don’t involve an actual person and charge a flat fee per trade instead.
New York Stock Exchange (NYSE), NASDAQ – Stock exchanges, either physical or virtual, where stocks are traded. NYSE is the oldest and largest. NASDAQ tends to have more new companies and technology companies.
Dividend – A payment made by a company to its shareholders that is a portion of the company’s profits. Dividends may be paid directly to the investor or reinvested into more shares of the company`s stock.
Income Stock – Stock from a company that pays dividends rather than reinvesting profits. They tend to be established, slow-growing companies.
Growth Stock – A company that reinvests its profits back into the company rather than paying dividends - usually fast-growing, newer companies. Investors make a profit only when they sell their shares.
Split – Dividing a share into two or more shares. When a company’s stock is doing well, sometimes they cut the price in half, and double the amount of shares.
S&P 500, Dow Jones Industrial Average – Stock indexes: collections of different company stocks used to track average performance of the market as a whole.
Mutual Fund – When investors pool their resources to buy a diverse mix of stocks, reducing their risk. Investment decisions are usually made by professional money managers.
Index Funds/ETFs – A mutual fund that doesn’t use a manager, but instead follows pre-set trading strategies. They often have much lower fees than actively managed funds.
I.P.O. (Initial Public Offering) – A company’s first sale of stock to the public, in order to raise capital. Often offered to influential investors. This is usually the only time the company receives money directly from investors.
S.E.C. (Securities and Exchange Commission) – Government agency that regulates and polices financial markets and investment companies.
Insider Trading – Making stock trades based on information not available to the general public. Highly illegal!