Stocks Daytrading Terms Explained
It is important to a trader is to understand the meaning of some of the terms commonly used in stocks trading along with the different types of orders that can be placed when you buy or sell a stock.
Last – the last transaction for the stock took place at $34.25 a share.
Change – how much has the stock gone up or down from the closing price (price at about 4:00 PM EST) of the previous trading day. This means that the previous day’s closing price for Intel Corporation was $33.00 ( = $34.25 – 1.25 = $33.00).
Bid – the best open order to buy the stock (also known as the “best bid”). Someone is trying to buy INTC at $34.25 a share or lower.
Ask – the best open order to sell the stock (also know as the “best ask”). Someone is trying to sell INTC at $34.26 a share or lower.
Hi – the transaction with the highest price of the day. INTC has been as high as $34.45 per share.
Lo – the transaction with the lowest price of the day. INTC has been as low as $33.10 per share. So the stock, currently at $34.25, is closer to the upper part of its trading range than to the lower part.
Volume – the total number of shares that have been bought and sold (for every buyer there has to be a seller) during the current trading day. Talk about an active stock! In this example, INTC has traded $822,500,050 worth of stock so far (24,014,000 shares x $34.25 per share = $822,500,050). Keep in mind that INTC can easily trade twice this amount of shares in one complete trading day.
Last Trade – the size of the last transaction in the stock (somebody bought 500 shares of INTC stock from someone else who sold 500 shares of INTC stock).
Apart from above information there are following terms which are frequently used in quotes.
Open – This is the price of the first trade for the period (e.g., the first trade of the day). When analyzing daily data, the Open is especially important, as it is the consensus price after all interested parties were able to “sleep on it.”
Close – This is the last price that the instrument traded during the period. Due to its availability, the Close is the most often used price for analysis.
Some additional terms that are in use:
Bear: An investor who believes the market as a whole or a particular stock will decline. A bear is the opposite of a Bull.
Blue Chip: A company that has a history of solid earnings, regular and increasing dividends, and an impeccable balance sheet. Examples: Coca-Cola, Berkshire Hathaway, & Gillette. We have an entire subject area dedicated to Blue Chip stocks!
Book Value: The value of the company if all liabilities were subtracted from assets and common stock equity.
The book value has very little relation to the market value. In industries in the technology sector, this number is almost always miniscule compared to market capitalization.
Broker: A person that buys or sells an investment vehicle for you (securities, bonds, commodities, etc.,) in exchange for a fee, which is called a commission.
Bull: An investor who believes the general market or a particular stock is going to increase in price.
Dividend: A portion of a company’s income that is paid out to shareholders on a quarterly or annual basis. The Board of Directors declares dividends.
Dow Jones Industrial Average: The Dow Jones Industrial Average (or DJIA for short) is by far the most popular and widely used gauge of the U.S. Stock Market. It consists of a price-weighted list of 30 highly-traded Blue Chip companies.
Market Capitalization: A company’s market capitalization (or “market cap” as it s frequently called) is calculated by taking the number of outstanding shares of stock multiplied by the current price-per-share.
NASDAQ: A stock exchange where mostly shares of technology companies such as Microsoft and Cisco are traded. An exchange is a place where options, futures, and shares in stocks, bonds, indexes, and commodities are traded. The most famous in the United States is the New York Stock Exchange.
P/E Ratio: How much money you are paying for $1 of the company’s earnings. In other words, if a company is reporting a profit of $2 per share, and the stock is selling for $20 per share, the P/E ratio is 10 because you are paying ten-times earnings ($20 per share divided by $2 per share earnings = 10 P/E.)
Spread: The difference between the Ask and the Bid.
Stock: Stock is ownership. A business is divided up into shares of stock and parts of the company (the shares) are sold to investors to raise money.
Yield: When a company pays a dividend the yield is the percentage of the stock price in relation to the dividend paid. In other words, if a stock is trading for $10 and pays a dividend of $0.50, the yield is 5%, because for every $10 you invest, you would receive 5% back annually in the form of a fifty-cent dividend.