Stock Terms and Vocabulary for the Budding Investor

Every industry and profession has unique terms and vocabulary that set the insiders and pros apart from everyone else. The stock market and its investors are no exception. Knowing the lingo that investor gurus use is tremendously essential if you want to learn from them - or at least understand what they’re talking about.

Securities - A broad term that is used to describe investment mediums that are of financial value. Securities are broken down into two major types: equity and debt. Equity securities include stocks. Debt securities include bonds and banknotes.

Stock Exchange - A stock exchange is a company, corporation, or organization that creates or provides a place for stock brokers to trade securities, especially stocks. There are several stock exchanges across the globe. Some of the largest and most crucial in business are the New York Stock Exchange (abbreviated NYSE), the London Stock Exchange, and the Tokyo Stock Exchange.

Stock Market - This is the market, or place, where stocks can be traded. Stock markets can be public or private.

Stock - Generally speaking, these are units of ownership of a company. Businesses and corporations use the cash flow to finance their business ventures. Because it represents ownership stock is also referred to as “shares of a company“or just “shares“. There are different types of stock available to investors with unique benefits and requirements for each one.

Common Stock - This type of stock represents the primary ownership of the company. Investors who purchase common stock are known as shareholders. As shareholders, they have certain rights and voting privileges with the company in which they are investing. The percent of stock owned by a shareholder determines the magnitude of their power and liability with the company.

Preferred Stock - This type of stock also represents ownership in a company; however, its terms are stated in a Certificate of Designation that outlines what rights and benefits the investor is entitled to. For example, investors who purchase preferred stock may not have voting privileges. Instead, preferred stock may have dividends that are paid to preferred stock holders before dividends are paid to common stock holders. There may be an option to convert preferred stock into common stock. In cases of company bankruptcy, preferred stockholders receive payment in company assets after debt holders and before common stockholders. Due to its flexible nature, reviewing the Certificate of Designation is the key to understanding how a preferred stock functions for a specific company. Preferred stock is also sometimes called “preferred shares”.

Dividends - These are payments made by a company or corporation to the owners of their stock. The dividends come from the profit the company earns. Every time a business makes a profit, they have two choices. The first is to reinvest the money into the business, and the second option is to pay their shareholders. The payment of dividends is considered to be disseminating the assets of the business to its shareholders. It is not a cost or a company expense. These payments are traditionally cash, but may also come in the form of additional company stock. Dividends are also traditionally delivered to shareholders on a schedule, but companies can pay dividends at any time. When these payments are made to shareholders off schedule, they are sometimes called “special dividends”.

SEC - An abbreviation for the Securities and Exchange Commission. They are the U.S. government agency that enforces the federal laws that regulate the stock market. Its purpose is to ensure fair practices between businesses and investors. They are a non-partisan agency and they enforce the laws through civil actions and lawsuits.

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