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Dec 8, 2023

72 stock market terms every beginner trader should know

New to investing? Dive into this breakdown of stock market terms every beginner should know.

Learning to navigate the stock market as a new investor can be intimidating, but getting familiar with basic stock market terms can get you up and running sooner than you’d think. 

Understanding stock market fundamentals is key to making smart investing decisions, keeping a pulse on the market, and eventually taking on more complex trading strategies. Use the terms below to get a jump start on learning basic stock market vocabulary and create a strong foundation for your long-term wealth goals . In this article, we’ll cover:

• Asset allocation
• Asset classes
• Averaging down
• Bear market
• Bid-ask spread
• Blue-chip stocks
• Bull market
• Capitalization
• Capital gains
• Common stock
• Current ratio
• Day trading
• Debt-to-equity ratio
• Diversification
• Dividend yield
• Dollar-cost averaging
• Dow Jones Industrial Average (DJIA )
• Earnings per share (EPS)
• Economic bubble
• Equal weight rating
• Equity income
• Exchange-traded funds (ETFs)
• Expense ratio
• Going short
• Growth and income funds
• Growth stocks
• Head and shoulders pattern
• Index funds
• Initial public offering (IPO)
• Limit order
• Liquidity  
• Market index
• Market volatility 
• Moving average 
• Mutual funds
• Non-fungible token (NFT)
• Order imbalance
• Outstanding shares
• Preferred stock
• Price quote
• Profit margin
• Risk tolerance
• Stock market holidays
• Stock option
• Stock portfolio 
• Stock split
• Time horizon
• Value stocks
• Volume-weighted average price (VWAP)
• 52-week range

What is the stock market?

The stock market is a collection of markets where people buy and sell shares of publicly traded companies. When someone invests in a stock, their investment is represented by a share, or partial ownership, of that company. 

The stock market operates by potential buyers naming the highest price they’ll pay for an asset (the “bid”) and potential sellers naming the lowest price they’re willing to sell for (the “ask”). Trades are typically executed by stockbrokers on behalf of individual investors.

72 stock market terms for new investors  

The stock market terms below are a great starting point if you’re new to trading stocks. Study these terms to familiarize yourself with common stock lingo that any new investor should understand. 

1. Arbitrage 

Arbitrage refers to purchasing an asset from one market and selling it to another market where the selling price is higher than what you paid for it, resulting in profit. 

An ask is the selling price that a trader offers for their shares. 

3. Asset Allocation

Asset allocation is an investment strategy that aims to balance risk and reward by dividing a certain percentage of investments—like stocks, bonds, real estate, cash, etc.—across different assets in an investment portfolio. 

4. Asset Classes

Asset classes are categories of assets, such as stocks, bonds, real estate, or cash. 

5. Averaging Down

Averaging down is an investing strategy that involves buying additional shares of an asset or stock after its price has fallen, resulting in a lower average purchase price. 

6. Bear Market

A bear market is a market condition in which prices are expected to fall. Typically, this entails major indexes or stocks decreasing by 20% or more compared to previous highs. 

Beta is the measure of an asset’s risk in relation to the market. A stock with a beta of 1.5 means that the stock typically moves 50% more than the market in the same direction. Generally, a higher beta indicates a riskier investment—if the market rises 10%, the stock will rise by 15%, but if the market falls by 10%, the stock will fall by 15%. 

The price a trader is willing to pay for shares of a stock or other asset. 

9. Bid-Ask Spread

Bid-ask spread is the difference between what buyers are willing to pay and the price sellers are asking for a stock. 

10. Blockchain

A blockchain is a record-keeping database in which transactions made in Bitcoin or other cryptocurrencies are recorded across multiple computers and distributed across the entire network of those computers.

11. Blue-Chip Stocks

Blue-chip stocks are common stocks of well-known companies known for their quality and history of growth. 

A bond is a type of security loaned by an investor to a borrower like a company or government used to fund its operations. 

13. Bull Market

A bull market is a market condition in which prices are expected to rise.

14. Buyback

A buyback is when a company repurchases outstanding shares to reduce the number of shares on the market and return profits to their investors, resulting in an increased value of the remaining shares. 

15. Capitalization

Also known as market cap , capitalization is the total market value of all a company’s outstanding shares. It’s calculated by multiplying the total number of shares by the current share price. Check out the largest companies by market cap here.

16. Capital Gains 

Capital gains refers to the profit earned after selling an asset or investment for a higher price than you paid for it. 

17. Common Stock

This is one of the most basic stock market terms to know. Common stock is a type of security that represents ownership in a company. Holders of common stock are able to vote on matters like corporate policies and elect directors within that company. 

18. Current Ratio

The current ratio is a measure of a company’s ability to pay short-term debt. It’s determined by dividing current assets by current liabilities. 

19. Day Trading

Day trading is the practice of buying and selling shares of stock within a single day.   

20. Debt-to-Equity Ratio

Debt-to-equity ratio represents a function of a company’s debt relative to its equity, or the value of its assets minus its liabilities. The ratio is found by dividing total liabilities by total shareholder equity. 

21. Diversification

Diversification is an investment strategy that divides investment funds across a variety of assets in order to minimize overall risk. 

 22. Dividend

“ Dividend ” is one of the most basic terms for the stock market. It’s simply a portion of a company’s earnings paid out to its shareholders. 

23. Dividend Yield

A dividend yield is a dividend expressed as a percentage of its stock price . 

24. Dollar-Cost Averaging

Dollar-cost averaging is an investment strategy in which you invest a fixed amount on a regular basis regardless of the price of the asset. 

25. Dow Jones Industrial Average (DJIA)

Also known as Dow 30, the Dow Jones Industrial Average is a stock market index consisting of the 30 most-traded blue-chip stocks on the New York Stock Exchange. It’s used to measure the performance of shares among the largest U.S. companies and gauge the overall direction of stock prices. 

26. Earnings per Share (EPS)

Earnings per share is a company’s profit divided by its number of outstanding shares, and is used to measure corporate profitability.

27. Economic Bubble

An economic bubble is a situation where asset prices surge to significantly higher levels than the fundamental value of that asset. 

28. Equal Weight Rating

An equal weight rating is a measure used by equity analysts to signify how well a stock is performing relative to other stocks. An equal weight rating suggests that a stock will perform similarly with the average of all the stocks being used for comparison.

29. Equity Income

Equity income is used to describe any income received from stock dividends. 

30. Exchange

An exchange, or stock exchange, is a marketplace where investors and traders buy and sell stocks. You’ve probably heard of the most well-known exchanges in the U.S.: the New York Stock Exchange (NYSE) and Nasdaq. 

31. Exchange-Traded Funds (ETFs)

Commonly known as ETFs , exchange-traded funds are a collection of stocks or bonds combined in a single fund that can be purchased and traded on major stock exchanges. Similar to mutual funds, they’re a pooled investment fund, meaning a “pool” of money is aggregated from multiple investors. 

32. Expense Ratio

An expense ratio measures the cost of owning a mutual fund, including expenses like the management of the fund, overhead fees, and any other costs associated with running the fund. It’s essentially an administrative fee paid to the company in return for owning the fund. The ratio is measured as a percentage of your total investment—for example, if you invest $10,000 in a fund with an expense ratio of .20%, you’ll pay $20 on top of your investment. 

33. Futures

A future is a contract that requires a buyer to purchase a specific asset, and the seller to sell that asset at a certain future date at an agreed-upon price. Futures are a way for investors to hedge current investments—a risk management strategy intended to offset potential losses in other investments.

34. Going Long

Going long refers to the act of buying stock shares with the expectation that the asset’s price will rise, resulting in a profit. 

35. Going Short

Going short —the opposite of going long—refers to the act of selling stock shares with the expectation that the asset’s price will fall. When an investor goes short on an asset, they borrow that asset, sell it, and hopefully purchase it later at a lower price if the price does decline, resulting in profit. 

36. Growth and Income Funds

This is a type of mutual fund or ETF that has both a history of capital gains (growth) and income generated from dividends (income). Growth and income funds have a two-sided strategy of both long-term growth and short-term income. 

37. Growth Stocks

A growth stock is a common stock of a company whose revenues are expected to grow at a significantly higher rate than what’s average for that industry. 

38. Head and Shoulders Pattern

The head and shoulders pattern refers to a specific chart formation seen on a technical analysis chart. It appears when a stock price reaches three peaks: when the price peaks then declines; rises above that peak and declines again; and rises a third time (but not as high as the second peak) and then declines again. The second peak represents the formation’s “head,” and the first and third peaks represent the “shoulders.” It’s generally considered to be an indicator of an impending bear market. 

 39. Index Funds

Index funds are investment funds that follow the performance of a specific benchmark or stock market index, like the S&P 500. When you invest in an index fund , your money is used to invest in every company in that index. This results in a more diverse portfolio than if you were hand-selecting individual stocks, for example. 

40. Inflation

Inflation is the rate of increase in prices for goods and services in the economy. 

41. Initial Public Offering (IPO)

An IPO refers to a previously private company that becomes public by selling stock 

shares on the stock market. 

42. Limit Order

A limit order is an order to buy or sell a stock at or below a specific price. Limit orders give traders control over how much they pay. 

43. Liquidity 

Liquidity measures how quickly and easily a stock can be bought or sold without impacting its price. Cash, for example, is the most liquid asset—no exchange is necessary to gain value from it, and it’s already in its most liquid form. On the other hand, a car is less liquid—regardless of its value, you might have to wait to sell it at its best price. 

Sometimes referred to as “buying on margin,” margin is when investors borrow money from a broker to purchase a stock, similar to a loan. 

45. Market Index

A market index tracks the performance of a certain collection of stocks, often grouped to represent a certain industry. They’re a tool for investors to gauge the health of the stock market by comparing current and past stock prices.

46. Market Volatility

Market volatility is a measure of how much and how often the value of the stock market fluctuates. 

47. Moving Average

A moving average is the average price of stocks or other assets over a specific period of time. Generally used in technical analysis charts, it’s calculated by averaging data from the previous time periods to help investors identify the current direction of price trends.

48. Mutual Funds

Mutual funds are pools of investments from shareholders used to “mutually” buy securities like stocks, bonds, and other assets. 

Nasdaq, or National Association of Securities Dealers Automated Quotations, is an electronic exchange where investors can buy and sell stocks through an automated network of computers. It’s the second-largest stock exchange in the world, following the NYSE.  

More broadly, Nasdaq can also refer to the Nasdaq Composite Index, a stock market index of over 3,300 companies listed on the Nasdaq exchange. In this context, it can be thought of similarly to other indexes like the DJIA or the S&P 500.

50. Non-Fungible Token (NFT)

A non-fungible token, more commonly known as an NFT, is a blockchain-based financial security. Each NFT represents a unique digital asset. “Non-fungible” indicates that it can’t be replicated or replaced with something else. 

51. Order Imbalance

An order imbalance occurs when orders of one type of stock aren’t offset by opposite orders, resulting in an excess of orders for that specific stock and sometimes volatile price changes. 

52. OTC Stocks

OTC stocks , or over-the-counter stocks, are securities that are traded on a broker-dealer network instead of on a major U.S. stock exchange. They’re often used by smaller companies who don’t meet the requirements to be listed on a formal stock exchange.

53. Outstanding Shares

Outstanding shares refers to the total number of a company’s shares that have been issued to shareholders, including restricted shares. 

54. P/E Ratio

Used to value a company, the P/E ratio , or price-earnings ratio, is the ratio of a company’s share price to the company’s earnings per share. 

55. Preferred Stock

Preferred stock is a type of stock that combines characteristics of both common stock and bonds. Owners of preferred stock receive different rights than common stockholders , like receiving dividends before common stockholders, but they generally don’t come with corporate voting rights like common stocks do. 

56. Price Quote

A price quote is the price of a stock or other security as quoted on an exchange. Price quotes usually come with important supplemental information to help traders make more informed investment decisions. 

57. Profit Margin

Profit margins are used to gauge the profitability of a company. It’s expressed as a percentage and is calculated by dividing the company’s net profit (total revenue minus total expenses) by total revenue. 

58. Recession

A recession is defined as a period of decline in economic performance throughout the economy, generally lasting for at least several months. 

59. Risk Tolerance

Risk tolerance is a measure of the level of risk you’re willing to accept on your investments. Someone with a lower risk tolerance typically sees lower returns on their investments in exchange for lower overall risk in periods of market decline. 

60. Roth IRA

A Roth IRA is an individual retirement account that allows you to contribute after-tax dollars, allowing your earnings to grow and be withdrawn tax-free. 

The stock market includes shares from thousands of different companies, which are broken into 11 different sectors . A sector is a group of companies with similar business products, services, or characteristics. 

Shares are units of ownership in part of a company’s total stock . 

63. Stock Market Holidays

While this isn’t necessarily a term or definition, it’s important to know what days you can and can’t buy or sell on the U.S. stock exchange. The U.S. stock market observes 10 holidays a year, closing on those days. In 2024, the observed holidays are New Years Day, Martin Luther King Jr. Day, President’s Day, Good Friday, Memorial Day, Juneteenth National Independence Day, Independence Day, Labor Day, Thanksgiving, and Christmas.

64. Stock Option

A stock option is a contract that gives an investor the right to purchase or sell a specific number of stock shares at a predetermined price within a specified time period. 

65. Stock Portfolio

A stock portfolio is an individual’s collection of investments, including stocks, bonds, mutual funds, and other financial assets. While a portfolio refers to all of your investments, they might not be contained in one single account. 

66. Stock Split

A stock split occurs when a corporation increases the number of its outstanding shares by distributing more shares to current stockholders. By splitting existing shares into multiple new shares, the stock becomes more affordable. 

67. Time Horizon

Time horizon refers to the period of time an investor expects to hold an investment, which will vary based on personal investment goals and strategies. For example, investing in a retirement account like a 401(k) has a longer time horizon, since the funds won’t be withdrawn until you reach retirement age. Generally speaking, longer time horizons correlate to more risk potential in a portfolio, and shorter time horizons correlate to a more conservative (less risky) portfolio. 

68. Value Stocks

Value stocks are shares of companies selling at bargain prices that investors expect to rise because the company’s financial fundamentals suggest the shares are actually worth more than the current value.

Volume is a measure of how much a certain stock or other investment has been traded over a certain period of time. Volume is a critical component of strategically analyzing stock market trends, and is often used to determine market strength.  

70. Volume-Weighted Average Price (VWAP)

Volume-weighted average price (VWAP) is a measure of the average trading price of a stock or other asset, adjusted for volume. It’s calculated by dividing the total dollar value of trading in that asset by the volume of trades. 

71. Yield 

Yield refers to the income earned on an investment over a set period of time, expressed as a percentage of your original investment. 

72. 52-week Range

The 52-week range is a technical indicator that measures the lowest and highest price of a stock traded during a 52-week period. Traders use this measure to analyze current stock prices and predict its future movements. 

Learning to navigate the stock market and stock trade terms for the first time might feel daunting, but consider this your official first step on the path to developing your investing muscles. When you come across a term you’re unfamiliar with in your own research, refer back to this post until you’ve mastered them. You’ll find that learning these stock terms for beginners is more doable than you think. 

The more time you invest in learning stock market terms and fundamentals, the more confident you’ll become as an investor. And if you’re looking for a little more support, consider turning to a platform like Stash . We make it easy to invest what you can afford on a set schedule, all the while providing unlimited financial education and personalized advice based on your risk level—so you can start building long-term wealth , even if you’ve never invested before. 

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FAQs About Stock Market Terms 

Have more questions about stock market terms? We have answers.

Why Should You Know Stock Market Terms? 

Establishing a working knowledge of stock market terms forms the foundation for the rest of your investment journey. It’s the gateway to crafting a strategic market approach, understanding different trading strategies, and making sense of market fluctuations that will inform your future trading decisions. 

How Do You Buy Stocks? 

Before investing a dollar, get clear on your investment goals—this informs everything from your investment timeline to the specific investments you’ll choose. From there, the process of buying your first shares of stock is surprisingly easy:

• Open a brokerage account
• Research what stocks you want to buy
• Determine how much you can afford to invest 
• Purchase your first share
• Maximize returns with a buy and hold strategy

What Are the Most Used Stock Market Terms?

The most used stock market terms include bear market, bull market, dividend, ask, bid, and blue-chip stocks. 

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Home — Essay Samples — Economics — Finances — Stock Market

Stock Market Essays

Writing an essay on the stock market is important because it allows individuals to gain a better understanding of how the market works and its impact on the economy. It also provides an opportunity to explore the various factors that influence stock prices and investment decisions.

When writing an essay on the stock market, it is important to start by conducting thorough research on the topic. This includes gathering data on historical stock performance, market trends, and the impact of economic events on stock prices.

It is also important to consider the different perspectives on the stock market, including those of investors, analysts, and regulators. This will help provide a comprehensive overview of the market and its complexities.

When structuring the essay, it is important to provide a clear introduction that outlines the purpose of the essay and the key points that will be discussed. The body of the essay should present the research findings and analysis, while the conclusion should summarize the main points and provide insights into the future of the stock market.

Overall, writing an essay on the stock market is important for gaining a deeper understanding of the market and its impact on the economy. It also provides an opportunity to develop critical thinking and analytical skills, which are valuable in the world of finance and investment.

What Makes a Good Stock Market Essay Topics

When it comes to choosing a topic for your Stock Market essay, it's important to consider a few key factors. First, brainstorming is essential. Think about current events, trends, and controversies in the stock market. Consider what interests you and what you are passionate about. Additionally, it's important to choose a topic that is relevant and timely. A good essay topic should also be specific and focused, allowing you to delve deep into the subject matter and provide valuable insights.

Best Stock Market Essay Topics

• The impact of social media on stock market behavior
• The role of algorithmic trading in today's stock market
• Analyzing the stock market implications of climate change policies
• The psychology of stock market investing
• Evaluating the impact of geopolitical events on the stock market
• The future of cryptocurrency in the stock market
• The ethics of insider trading in the stock market
• Analyzing the stock market implications of technological advancements
• The role of government regulations in the stock market
• The impact of corporate governance on stock market performance
• The relationship between stock market performance and economic indicators
• The influence of behavioral finance on stock market trends
• Evaluating the impact of corporate scandals on stock market volatility
• The role of central banks in influencing stock market behavior
• The impact of globalization on stock market dynamics
• Analyzing the stock market implications of corporate mergers and acquisitions
• The role of financial derivatives in shaping stock market trends
• The impact of interest rate changes on stock market performance
• The influence of investor sentiment on stock market movements
• The future of sustainable investing in the stock market

Stock Market Essay Topics Prompts

• Imagine you are a stock market analyst in the year 2050. What major trends and developments do you predict for the stock market?
• If you could create a new financial instrument for the stock market, what would it be and how would it impact trading and investing?
• You are tasked with writing a research paper on the impact of artificial intelligence on stock market behavior. What specific areas of AI would you focus on and why?
• Pretend you are writing a letter to a beginner investor, explaining the key factors they should consider when making stock market investments.
• Create a fictional scenario where a major global event causes unprecedented volatility in the stock market. How would you analyze and interpret the market's response?

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Essays on Stock Market

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Stock Market - List of Essay Samples And Topic Ideas

The stock market refers to the aggregation of buyers and sellers of stocks, representing ownership claims on businesses. Essays might explore its operation, the role it plays in an economy, and the factors affecting stock prices. Discussions could also delve into stock market crashes, investment strategies, or the broader implications of stock market trends on global finance. A vast selection of complimentary essay illustrations pertaining to Stock Market you can find at PapersOwl Website. You can use our samples for inspiration to write your own essay, research paper, or just to explore a new topic for yourself.

Soccer and Stock Market

When reviewing previous papers, we can touch the remarkable role of emotions that would suggest alternative courses of action affecting behavior of individuals and thus the decision-making, As a simple example the incidental anger happening in one situation will elicits automatically a motive to blame individuals in other situations even though the targets of such anger have nothing to do with the source of the anger (Tedeschi & Quigley 1996), and that typically occurs without awareness, as if Emotions play […]

Stock Market and Soccer

The interest in the role of sentiment, mood, feelings and emotions in finance and business stems from the work of (Kahneman and Tversky, 1979). Results in this area was built on evidence from experimental psychology and economics and studies to explore how investors are affected in light of information's evaluation, risk, gains. The applying the direct and the indirect measurement on the sentiment and feelings of the investors as an attempt to discover its role on the performance of stock […]

What was the Great Depression?

The Great Depression was a dramatic shift in the US economy leaving people homeless and people didn't have a way to make a living. .This made the government create new programs called the New Deal it however failed to stop the Great Depression and these programs wasted a lot of money..The Great Depression started in 1929 it was the biggest economic downfall in US History it left a lot people without jobs and banks started going out of business all […]

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The CAC 40 – the Paris Stock Exchange

The CAC 40: stands for "Cotation Assistée en Continu", which may be translated to continuous aided mercantilism, and is that the hottest benchmark index for funds finance within the French securities market. This index provides a general plan regarding the direction of the "Euronext Paris", that is that the largest stock market in France once referred to as the Paris stock exchange. CAC 40 represents the capitalization-weighted measure of the foremost forty vital values among the very best one hundred […]

Open to Growth in America

Beginning in 1931, the idea of being open to growth blossomed into a large amount of literature, permeating the experiences of the following times: the 1930s with the Great Depression, the 1940s with World War II, and the 2000s with 9/11. During the Great Depression, our country was in poverty. In October of 1929, known as Black Thursday, the stock market crashed. The mass destruction and ensuing chaos led to stockbrokers jumping out of the investment buildings where they worked, […]

Causes of the Great Depression and the Lasting Impacts

Abstract This paper discusses the causes of the Great Depression and the lasting impacts it had on the U.S. Many people attribute the sole cause of the Great of Depression to the stock market crash of 1929 but there are actually multiple contributing factor. The stock market crash propelled the Great Depression forward but many other causes contributed to the length and depth. Keywords: Great Depression, Stock Market The 1920's were a time of low unemployment, mass production of goods, […]

The Causes of the Great Depression

Imagine losing all your money in a blink of an eye after it being flowing into your pocket rapidly in the last period and then you either have to depend on others or sell what you have and stand in long lines for food. This is what happened to average families during the greatest economic downturn in the history of the U.S. Before the great depression the U.S was advancing exponentially during what was called the Roaring Twenties(Ellen Parson,2002). The […]

Successful Business of Apple Company

Apple is the most successful company in terms of technology development. Their profits, and product growth have been transparent in our eyes. The company's capitalization has reached 1.003 trillion dollars. On other portals, the value of the company still did not exceed a trillion. At the same time on the website of the trading platform - Nasdaq - the company's capitalization has already exceeded 1.008 trillion dollars. Apple's phenomenal record is explained not only by the successful business and innovation […]

Gender Roles during the Great Depression and the Cold War

A role or behavior learned by a person as appropriate to their gender which is determined by the prevailing cultural norms is called a gender role. Both men and women have been told how to behave, dress, and even present themselves to the public. An example of gender roles in society is women are supposed to be feminine, graceful, polite, nurturing, emotional, take care of kids, cook, clean; while men are supposed to be muscular, aggressive, tall, take care of […]

January 20th in History

"January 20th is an important day in history. It is an important day because Prohibition took effect, the National Board of Censorship was created, the United States Senate allowed the Navy to lease Pearl Harbor as a naval base, United States President Harry S. Truman in his inaugural address for a full term as President, and that the stock markets fall. Prohibition succeeded in cutting overall alcohol drinking, and use during the 1920s. Pre-prohibition levels stayed low until the 1940s. […]

Black Tuesday: the Day that Shook the Financial World

The somber occasion of Black Tuesday, transpiring on October 29, 1929, etches itself as a cataclysmic juncture in the annals of financial history, heralding a precipitous descent into the maelstrom of the Great Depression. The seismic shockwaves emanating from the stock market crash reverberated across the globe, precipitating unparalleled economic upheaval and inaugurating a decade fraught with fiscal adversity. Comprehending the magnitude of Black Tuesday necessitates a nuanced examination of the precipitating factors, immediate aftermath, and enduring repercussions on the […]

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In the world of investment, certain stocks serve as bellwethers for their respective sectors, and when it comes to the consumer goods sector, Kellogg's often stands out as a staple. Known for its dominance in the breakfast cereal market, Kellogg's has expanded its portfolio over the years to include a variety of food products, making it a significant player in the global food industry. This essay delves into the performance of Kellogg's stock, examining its historical trends, current market position, […]

Deciphering Kroger’s Stock Market: a Closer Look

Kroger, a household name in the realm of grocery retail, stands as a cornerstone of many communities across the United States. Yet, behind its bustling aisles and stocked shelves lies a web of ownership that spans both individuals and institutions. Founded in 1883 by Bernard Kroger in Cincinnati, Ohio, the supermarket chain has since grown into one of the largest retailers in the country, boasting thousands of stores under various banners, including Kroger, Ralphs, Fred Meyer, and others. However, despite […]

Dancing in the Financial Cosmos: Navigating the Intricacies of the Stock Market Game

Within the dynamic tapestry of financial landscapes, a mesmerizing enclave beckons both novice adventurers and seasoned maestros—the Stock Market Game. It is a realm where the ebb and flow of virtual capital mimic the unpredictable dance of fortunes, a captivating space where participants traverse the highs and lows of financial acumen with only the ethereal tether of simulated wealth. As players embark on this odyssey, they find themselves at the helm of a virtual portfolio pregnant with possibilities. Armed with […]

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Stock Market and Small Investors Expository Essay

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Introduction

Factors that determine the quality of stock, disadvantages faced by small investors when investing in the stock market, advantages enjoyed by small investors when investing in the stock market.

The stock market is one in which shares are traded. This trading may either be through exchanges or sometimes it might be carried out through over-the-counter markets. The stock market is also referred to as the equity market and it serves as one of the most important areas of a country’s economy (Bogle, 2010). A stock market offers an opportunity to companies to gain more investors while being able to access more capital.

The stock market can either be primary or secondary. In a primary market, there is issuance of shares whereas subsequent trading of shares takes place in the secondary market (North & Caes, 2011).

The stock market offers excellent investment opportunities where the money invested earns a good return either in form of capital appreciation or regular income from dividends. Stocks are preferably purchased for investment purposes when their prices are low so that they produce relatively high profits through dividends.

To determine the quality of various stocks, an investor should consider a number of factors. These factors include management of the company, the products offered by the company, the competitive position of the market, the asset base, the company’s liquidity, the volatility of the stock, and the strength of the company’s corporate governance (North & Caes, 2011).

Depending on the number of shares held by different investors, the issue of ‘big’ investors and ‘small’ investors come up. As the words suggest, ‘big’ investors are those who hold more shares while ‘small’ investors refer to those holding a lesser number of shares. The question that arises is, who between the ‘big’ or ‘small’ investors enjoy the most benefits or endure the most disadvantages?

Small investors are faced with the difficulty of building a diversified portfolio. Whereas big investors may have enough money to purchase as many stocks as they want, small investors lack these funds and they are only able to purchase a few stocks.

This becomes very risky since they concentrate all their money in that investment (Fisher, 2012). In addition, the administrative costs that are charged on these few stocks may at times be too high for the small investors to afford their upkeep.

Some firms may also set a very high minimum opening requirement as the deposit. This makes it very difficult for small investors to navigate their way in the stock markets. Small investors are also faced with the problem of high fees which are charged as a percentage of their total investment (Lensink, Bo, & Sterken, 2001). This in turn reduces the dividends they receive at the end of a financial period.

Ironically, small investors derive their benefits from their portfolios size. As earlier discussed, small investors are just that, small. In fact, they are advised to remain just as small as they are. Unlike the ‘big’ investor, ‘small’ investors can just purchase the top picks when they are on offer in the sector (DePorre, 2007).

This is mainly because the purchases of the small investor do not largely affect the prices of the shares in the market since they only deal with a few stocks unlike the big investors who would influence the share prices in the market.

In addition, the small investors are able to act with greater speed to every available opportunity in the sector than the big investors since they manage their own undertakings (Cohen, 2012). Furthermore, the risk endured by small investors is very minimal since only a few stocks are involved unlike the big investors who deal in massive stocks.

In conclusion, the misconception that small investors do not stand a chance against the big investors in the stock market should be cleared. On one hand, there are advantages to them remaining just small while on the other hand, there may be some advantages that tag along these small investors.

Bogle, J. C. (2010). The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns. New Jersey: John Wiley & Sons.

Cohen, G. (2012, August 12). How Small Investors Gain Such a Big Advantage Over Wall Street . Web.

DePorre, J. R. (2007). Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital Made a Fortune Investing in the Stock Market. New Jersey: FT Press.

Fisher, P. A. (2012). Common Stocks and Uncommon Profits, Paths to Wealth through Common Stocks, Conservative Investors Sleep Well, and Developing an Investment Philosophy. New Jersey: John Wiley & Sons, 2012.

Lensink, R., Bo, H., & Sterken, E. (2001). nvestment, Capital Market Imperfections, and Uncertainty: Theory and Empirical Results. Massachusetts: Edward Elgar Publishing.

North, C., & Caes, C. J. (2011). The Stock Market. New York: The Rosen Publishing Group.

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