Stock Market Terms You Need to Know

If you are new to investing, you should understand several stock market terms before you make those first trades. Stock market investing is complicated; it's not something you can digest in a matter of a few hours. Study these terms to gain a basic understanding of the stock market, and then start digging deeper.

Bear Market
The market is declared a bear market when the stock market hits an extended downturn where the value of stocks goes down by at least 20%. In a bear market, many investors begin to bet against the market in order to make money off the poor performance of stocks.

Bonds
A bond is in essence a loan you extend to an entity with the promise of the repayment of the loan, plus interest (or some sort of monetary gain). When you purchase a bond, you are actually lending your money. When the bond matures, you get your principal balance back.

Bull Market
The market is declared a bull market when stocks across the board are generally increasing in value and investors are very actively buying stock.

Consumer Price Index
The Consumer Price Index is a measure of inflation as reflected in the general economy.

Dow Jones Industrial Average
The Dow Jones Industrial Average is an index of 30 of the most important and dominant corporations in the United States. If you commit to watching the Dow and keeping an eye on how the top corporations are performing, you'll find your understanding of the stock market will increase rather quickly.

Market Value/Market Cap of a Company
This is the number of a company's outstanding shares multiplied by the going price of the company's shares. This number helps you establish the current value of a company in regards to investing value. Market caps are broken down into the following categories: micro-cap, small-cap, mid-cap and large-cap.

Money Market Mutual Fund
One of the safest investment vehicles available, a money market fund is a mutual fund that offers a very low return, but it is also very low-risk.

Mutual Funds
A mutual fund is a professionally managed firm that collects money from investors and then invests in a variety of stocks, bonds and other investment vehicles with the goal of yielding profits for the investors with less risk or volatility than is undertaken when an individual invests in a few stocks or bonds on her own.

Stocks
Stocks are shares in a company that are traded on the stock market. Shares are bought at the current sale price and then sold at will in the future for either a profit, loss or at a dead even break. In essence, the owner of a particular stock owns a fractional portion of the company or has a financial investment in the company. This is done to gain money, betting that a company's stock will either go up or down in value over time.

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What is a bear market? At its very simplest definition, a bear market is official when stock prices decline 20 percent from a previous high. However, bear market implies that the market is experiencing a general downward trend, so a dramatic decline over a day of trading followed by a subsequent rally doesn't exactly qualify as a bear market. 

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