Terms You’ll Need To Know Before You Start Investing

While many people are interested in investing, there are a variety of things that can stop them from doing so. One of the more notable of these is the terminology that’s used in the niche that can often make it quite confusing.

Though the majority of experienced investors will consider many terms somewhat basic, they can be overwhelming for many people who are new to the niche. As such, they can pose somewhat of a barrier to entry for many of us, although this doesn’t have to be true.

While there are quite a significant number of things that you’ll want to be aware of before investing, there are a few basic terms that you should be mindful of. By doing so, you’ll then be able to start building the foundation for your future investment success.

What Are Gap Up Stocks?

The term gap up stocks may seem confusing to many people; the act itself is much simpler than you might suggest. Gap up stocks refers to stocks that open at a higher level than they did on the previous day of trading, with this increase being referred to as a gap up.

Related to this is the term: full gap up. This is where a stock opens noticeably higher than it did on the previous day. As you may expect, there’s also the term partial gap up. This is used when a stock opens marginally higher than it did in the previous trading day.

There can be quite a significant number of things that affect this and can often make the process seem overwhelming. Should there be a variety of gap up stocks, then this is typically an indication of a bull market.

What Is A Bull Market?

Speaking of a bull market, this is a term that’s used a significant number of times when referring to the stock market, although the majority of newcomers may not know what this means. Typically, this refers to a market where prices are either rising or expected to rise.

Since prices can fluctuate regularly, the term is usually used for when stock prices rise for a large amount of time. In many cases, bull markets can extend for months or even years. Alongside this, it’s typically only used when a large number of stocks are rising.

What Is A Bear Market?

A bear market is something related to a bull market, although it means the opposite. However, this doesn’t mean that it will be used anytime stock prices fall. In contrast, it’s typically used to refer to a market where the stocks have fallen 20% or more.

This is usually accompanied by widespread pessimism in the market, although whether the drop comes first or second can vary. Perhaps the most notable bear market in recent memory is the Great Recession, where stocks dropped and remained low for 17 months, between 2007 and 2009.

What Is Volatility?

Volatility is something that can play quite a significant role in the stock market, though it’s something that many people may be confused by. This is the statistical measure of a stock’s or security’s dispersion of returns. Typically, the higher the volatility, then the riskier the stocks.

While these can often pay out large dividends, it’s recommended that new investors avoid them when they first start in the niche.

What Is Leverage?

The term leverage is something that many people may be familiar with, although its definition can vary somewhat depending on where it’s being used. In stocks, it’s used to refer to the ratio of a broker’s credit to a trader’s funds, making it a borrowed asset that’s typically used to increase potential returns.

In many cases, this leverage is several times larger than the initial invested capital.

What Is A Spread?

While the term spread can have a variety of meanings in investing, there are a few definitions that are much more common than others. The most notable of these is the difference between two prices, with this typically referring to the asking amount of a stock and a bid, with this often being called the bid-ask spread.

While there is a variety of other things that you’ll need to know before investing, it can be essential to know the basics before doing so. This will ensure that you’re able to properly research and understand the stocks that are on offer before you invest.