A Beginner's Guide to the Stock Market Flashcards

A comprehensive set of vocabulary flashcards covering the core concepts of stock market investing and trading based on the beginner's guide by Matthew R. Kratter.

Stock

A share of ownership in a company that makes the holder a shareholder.

Market Cap (Market Capitalization)

The current total value of a company, calculated by multiplying the total number of shares outstanding by the price per share.

Forward-looking Mechanism

A term for the stock market's tendency to price stocks based on what is likely to happen over the next $3$ to $6$ months.

Investor

A person who buys stocks and holds them for many years.

Trader

A person who buys and sells stocks more quickly, holding them for durations such as an hour, a day, a week, or a month.

Stock Exchange

A place where buyers and sellers exchange shares for money, such as the New York Stock Exchange ($NYSE$) or the Nasdaq.

Ticker

A unique stock symbol used to identify a company, such as $KO$ for Coca-Cola or $AAPL$ for Apple.

Broker (Brokerage Account)

A middleman that provides individuals with access to a stock exchange.

Market Order

An order that tells a broker to execute a trade as quickly as possible regardless of the price.

Bid

The price at which someone is willing to buy a stock.

Ask (or Offer)

The price at which someone is willing to sell a stock.

Bid-Ask Spread

The price distance between the highest bid and the lowest ask.

Liquid Stock

A stock where a trader can buy or sell many shares without significantly moving the stock's price.

Limit Order

An order that specifies a exact price at which a person is willing to buy or sell a stock.

Day Order

An order to buy or sell that is only executed during regular market hours on the day it is placed.

GTC (Good 'til Cancelled) Order

An order that remains active through multiple trading sessions until it is either filled or manually cancelled.

Volatile

A term describing a stock that wiggles or jumps around a lot in price.

Index

A collection or "basket" of stocks, such as the S&P $500$, the Dow Jones Industrial Average ($DJIA$), or the Nasdaq $100$.

ETF (Exchange-Traded Fund)

A fund that trades like a stock on an exchange and represents a particular index, such as the $SPY$ for the S&P $500$.

Passive Investing

An investment strategy, such as indexing, that does not involve frequent buying, selling, or active decision-making.

Cost Averaging

The practice of investing the same dollar amount into an index or stock at regular intervals to achieve a better average price.

Expense Ratio

The annual fee charged to an investor by a mutual fund or $ETF$, such as the $0.04\%$ charged by the Vanguard $500$.

Dividend

A cash payment made by a company into a shareholder's brokerage account, typically every $3$ months.

Dividend Yield

The ratio of a stock's annual dividend payment to the price paid for the stock, expressed as a percentage.

Dividend Aristocrat

An elite group of companies that have raised their dividends every year for at least the past $25$ years.

Pricing Power

The ability of a business to raise its prices without losing customers to competitors.

Value Investing

A strategy centered on buying stocks for less than they are currently worth.

P/E Ratio (Price to Earnings Ratio)

A company's stock price divided by its earnings per share ($EPS$) over the last $12$ months.

Value Trap

A situation where a stock appears to be a good value based on low multiples but turns out to be a trap as earnings collapse.

Growth Stock

The stock of any company that is expected to rapidly increase its revenues or earnings.

Post-Earnings-Announcement Drift (PEAD)

An anomaly where a stock that gaps up after a strong earnings report tends to continue moving in that same direction for days or weeks.

Float

The specific number of shares of a stock that are actually available for public trading.

Short Interest

The quantity of shares that have been sold short by traders betting the stock price will decrease.

IPO (Initial Public Offering)

When a formerly private company first offers shares to the public to raise expansion money or allow insiders to cash out.

Lockup

A period, usually lasting $180$ days following an $IPO$, during which insiders are prohibited from selling their shares.

Covered Call

An options strategy where an investor sells a call option while simultaneously owning $100$ shares of the underlying stock.

Day Trading

A strategy involving buying and selling a stock on the same day, with no positions held overnight.

Gap

An empty space on a chart where a stock's price has moved up or down sharply from its previous trading range.

Penny Stock

Any stock that trades under the price of $5$ per share.

Mean Reversion

A market behavior where a stock that moves sharply away from its average price eventually falls back toward that average.

Shorting

An advanced trading strategy where a person borrows shares to sell them, hoping to buy them back later at a lower price for a profit.

Margin Account

A brokerage account that allows an investor to borrow money from the broker to buy more shares than their cash balance would allow.

Margin Call

A demand from a broker for an investor to add more cash to their account immediately or have their stocks sold to cover a margin loan.