Basic Trading Terms
If you want to get into stock trading seriously, here are a few helpful trading terms that can guide you. A dividend is a portion of corporate profits made by a company and paid to its shareholders. When a company makes profit, it has two options - it reinvests the money for the benefit of the company or pays the shareholders. The shareholders can receive either share repurchases or dividends. The dividends can be in the form of cash, store credits or shares. In most cases, the companies will keep a part of the profit for reinvesting and the other part for paying the shareholders. The dividend increase, also known as the dividend growth rate, is the annualized percentage rate with which a stock grows over a period of time. The period of time can be of any interval. Another term that will be helpful is knowing what a call option is. A call option is synonymous to money when it can produce a profit. For example, if you bought a call option which gives you the right to buy a stock for $40 and the current stock price is $42, then your option is in the money, because you would make a $2 profit by buying the shares. If the stock price would go under $42, you would lose money so the option is considered to be out of the money. Depending on how much the value of the underlying stock exceeds the exercise price of a call, we can see how profitable an option is. If the profit would be very big, then we can talk about a "deep in the money option." "Buy the dip" is another financial term used in the investment business which describes a situation in which the stock price in a company goes down and a investor decides to purchase stock shares in that company in that certain moment buying at a discount price. In most cases, if a price goes down, it will eventually go up again because the stock market has frequently seen this kind of fluctuations. Even so, this strategy comes with its own risk. An investor must be careful because the stock price will not always go back up. Circumstances could have happened in that specific company that led to a situation in which the stock shares will go only down. In any case, it remains a financial strategy that many investors like to use.
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