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Basic concepts about stock market that you should know

Posted 21 September By Master Financial Risk Management Universidad AlcaláIn Finance Banking, FinanzasTagged financial risk0 comments

To finish perfecting our knowledge in Finance, we are going to give you some basics about the stock market. If you are interested or have always been struck by the world of the stock market, it is a good starting point. These are our most basic concepts to understand the stock market and know how to invest in it!

Basic concepts about trading

To facilitate learning, we will divide the concepts of investment in the stock market for Finance in several types. They are the following. Pay attention!

Stock tyres on the stock exchange

Action

Shares (“shares”) are securities that represent aliquots in the capital of a corporation, in other words, they are securities that represent a part of the ownership of a company.

The owners of the shares acquire economic rights, such as the collection of dividends, and political rights, such as attending and voting at shareholders’ meetings.

Undervalued and preferred stock

An undervalued stock (“undervalued stock”) is an action that trades below its intrinsic value. On the other hand, the preferred stock (“preferred stock”) is a type of share that confers some kind of advantage over the rest of the shares

Types of assets

Financial asset

A financial asset (“financial assets”) is a title that grants its owner the right or the possibility of receiving future income from its issuer.

Underlying Asset

The underlying asset is the asset on which the value of finished derivative financial products is obtained, such as financial options or swaps.

Intangible assets

Intangible assets (intangible assets) are assets that have no physical existence, such as intellectual property rights (such as trademarks or patents) or goodwill.

Tangible assets

Tangible assets (“tangible assets”) are those assets that have a physical existence.

Friendly acquisition

A friendly acquisition (“friendly takeover”) is a corporate acquisition that is supported by the management team of the acquired company.

Fundamental Analysis

The fundamental analysis (“fundamental analysis”) is the analysis of investments in which the information on the business fundamentals of the company (balance sheet, results, competitive position, etc.) is taken into account to carry out its assessment. Thanks to this analysis, conclusions can be drawn from the state of the company.

Balance sheet

The balance sheet is a financial statement that reflects the equity situation of a company at a given time, showing the assets it has (assets) and how to finance them (liabilities).

Beat the market

Beat the market (“beat the market”) consists of having a return after commissions higher than the market average.

Benchmark

A benchmark is a comparison standard for evaluating the results of an investment manager. The most common benchmarks are usually the stock indexes.

Profit per share

The profit per share is the net profit obtained by a company divided by the total number of shares.

Beta

The beta is a statistical measure of academic origin used by some financial professionals to measure the risk of an investment. It is calculated by comparing the historical volatility of a financial asset with the historical volatility of the market.

Bonuses

Bonds (“bonds”) are debt issuance securities of a company or state, which usually give the holder the right to collect periodic interest and the repayment of the principle according to the established terms.

In addition, there is a bond variable, junk bonds. They are bonds of companies with a high probability of default. They usually offer high profitability to attract investors.

Investment portfolio

The investment portfolio is the set of financial assets belonging to an individual or an entity.

Catalyst

A catalyst is an event that causes the price of an action to quickly approach its intrinsic value.

Coverage

A hedge (“hedging”) is an investment that is appreciated inversely to another so that it covers the possible losses that the second can cause.

Creditor contest

The bankruptcy (“insolvency”) is a legal situation that results from the inability of a company to meet its payments.

Contrarian Investing

It is an investment style consisting of looking for companies that are forgotten or excessively punished by the market. For this, it is based on the overreaction of the market in the face of bad news that can affect the profitability of companies in the short and medium term, without being affected in the long term.

Transaction costs

Finally, we finish our glossary of concepts with transaction costs. They are the costs derived from the completion of a transaction in the market. Transaction costs in the securities markets usually take the form of commissions, with the most common being those of purchase and sale and custody commission.

These are just some of the most basic concepts to understand the stock market. What do you think? Easy? Difficult? In part, they will help you in your knowledge of Finance in case you want to develop a prediction model of the rise in assets, movements of shares, etc. So, is not it a bad place to start, right?

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