Stocks Key Terms

Invest wisely by becoming familiar with stock key Terms

By Mary Spencer-Huber

Investing in the stock market can be financially rewarding during a bull market, when stock values are on the rise and investors are becoming increasingly wealthy over time. However, things are a little different on the flip side of a bull market, when stocks fall into negative territory and the bear market takes hold. During these times, investors often hope that they can at least tread water and wait out the downturn, without losing too much of their investment.

Anyone who is currently invested in the stock market or is thinking of investing, should have a clear understanding of the following common stock terms.

Stock exchanges

Stock exchanges are corporations or businesses where stocks, shares of stocks, and a variety of other securities are traded. In addition to providing a physical or electronic location for trading to occur, these exchanges also provide mechanisms for the exchange of money.
Try: Investor Words provides a definition of stock exchanges as well as several related terms, including various types of stock exchanges.

Dollar cost averaging

Dollar cost averaging is a regular investment of a fixed dollar amount in a particular mutual fund or other securities. When the price of shares are high, the investor will purchase less shares. When the price is low, the investor will purchase more shares over time.
Try: Cash Money Life outlines the benefits and drawbacks to dollar cost averaging.

Dividend stocks

Dividend stocks are a particular type of stock that pay the share holder with additional shares of stock instead of cash. For instance, if a company issues a stock dividend of .1 shares per every one share held, then a share holder with 10 shares of stock would receive one additional share whenever stock dividends are issued.
Try: Investopedia provides a detailed explanation of dividend stocks and offers links to more information.

Mutual funds

Mutual funds, like stocks, are a way for individuals to invest in the stock market. Investment companies choose several stocks for the mutual fund's portfolio and purchase them with investor's money. The performance of the mutual fund is dependent on the collective performance of all stocks as opposed to the performance of one stock.
Try: The U.S. Securities and Exchange Commission thoroughly explains mutual funds, including how they work, factors to consider, how to avoid pitfalls and what to do if problems emerge.

Bear market

A bear market is a constant downturn in a market over an extended period of time and can last for years, such as in the most famous bear market which lasted from 1929 to 1933. Defining a bear market, however, is much easier than recognizing when it actually occurs. Several indicators can suggest that a bear market is happening including low employment rates, but failing investor confidence can ultimately turn a sluggish economy into a true bear market.
Try: Street Authority details various aspects of a typical bear market.

Bull market

In contrast to a bear market, a bull market indicates a constant rise in the market over an extended period of time. Bull markets occur when demand stays higher than the typical amount of supply would dictate. Rising investor confidence can cause more and more investors to begin investing, creating a situation where demand for securities stays higher than normal.
Try: My Stock Market Power provides additional information about the bull market, detailing the most recent bull markets in American history.