10 Key Terms to Elevate Your Investing & Trading Game
Empower yourself with the knowledge to make informed decisions in the stock market.
Many of us in the MFG are continuously dedicated to financial education, striving to become the best investors and traders in the world.
A solid understanding of financial concepts empowers you to identify and take advantage of investment opportunities. This is essential for making informed decisions that can significantly grow your wealth.
Learning trading skills equips you with strategies to leverage yourself, manage risk, and maximize returns in the stock market.
Continuous financial education builds confidence, helps you adapt to market changes and stay ahead of economic trends, and enhances your ability to achieve long-term financial success.
This article explores 10 key terms every investor and trader should know to elevate their game in the markets.
10 Key Terms to Elevate Your Investing & Trading Game
In the dynamic world of investing and trading, understanding key terms is crucial for making informed decisions and achieving success.
Whether you’re a beginner or an experienced investor, being familiar with these terms will enhance your ability to navigate the stock market effectively. Here are ten important terms that every investor should be aware of:
Blue Chip Stock
Explanation: Blue chip stocks are shares of large, reputable, and financially stable companies that have a history of reliable performance and steady growth.
Importance: Investing in blue chip stocks is often considered a safer investment strategy due to their established market presence and resilience during economic downturns.
Examples include companies like Apple (AAPL), Microsoft (MSFT), Walmart (WMT), and Coca-Cola (KO), Johnson & Johnson (JNJ), and Nike (NKE).
Electronic-Traded Products (ETPs)
Explanation: ETPs are securities that track underlying assets like commodities, indices, or currencies and are traded on stock exchanges. The most common ETPs include ETFs, ETNs, and ETCs.
Importance: ETPs provide a flexible way to gain exposure to various asset classes and market segments, offering opportunities for diversification and strategic investment.
Common Types of ETPs:
Exchange-Traded Funds (ETFs):
ETFs are investment funds that track an index, commodity, bonds, or a basket of assets. They are designed to offer diversification, liquidity, and typically lower fees compared to mutual funds. examples: SPY, QQQ, DIA, SCHD
Exchange-Traded Notes (ETNs):
ETNs are unsecured debt securities issued by financial institutions that track an index or other benchmark, but do not hold the underlying assets. They provide investors with exposure to market indices and are subject to the credit risk of the issuer. examples: CEFD, GUSH
Exchange-Traded Commodities (ETCs):
ETCs are similar to ETFs, but focus on commodities. They can track the price of a single commodity (like gold or oil) or a basket of commodities. ETCs provide an easy way for investors to gain exposure to commodity markets. examples: GLD, USO.
ETPs typically have transparent structures, allowing investors to see the underlying assets and their performance. Many ETPs offer exposure to a broad range of assets, helping investors diversify their portfolios.
Initial Public Offering (IPO)
Explanation: An IPO is the process by which a private company offers shares to the public for the first time, transitioning to a publicly traded company.
Importance: Participating in an IPO can provide early access to potentially high-growth companies, but it also carries risks due to the unpredictability of newly listed stocks.
The Money Flow DOES NOT buy IPOs. I’ll say it again, the Money Flow does not buy IPOs.
Let the stock IPO, come down, and look for a bottom before buying shares. The most recent IPOs I’ve been watching are Maplebear (CART) and Reddit Inc (RDDT).
Stock Split
Explanation: A stock split occurs when a company increases the number of its outstanding shares by issuing more shares to current shareholders.
The total market capitalization of the company remains the same, but each share's price is reduced proportionately.
For example, in a 2-for-1 stock split, a shareholder who owns one share priced at $100 before the split will own two shares priced at $50 each after the split.
Importance: Stock splits make shares more affordable for investors and can lead to increased trading activity, although they don’t affect the company’s overall market capitalization.
Often perceived positively as it can signal that the company expects future growth.
Reverse Stock Split
Explanation: A reverse stock split is the opposite of a stock split. In a reverse split, a company reduces the number of its outstanding shares, which increases the price per share proportionately.
For example, in a 1-for-2 reverse stock split, a shareholder who owns two shares priced at $50 each before the split will own one share priced at $100 after the split.
Importance: Often used by companies to meet minimum share price requirements for stock exchanges. The market can perceive this negatively, as it may indicate the company is struggling with a low share price.
Key Differences
Stock Split: Increases the number of shares and decreases the share price.
Reverse Stock Split: Decreases the number of shares and increases the share price.
Yield
Explanation: Yield is the income return on an investment, typically expressed as an annual percentage of the investment’s cost or current market value. For stocks, it often refers to the dividend yield.
Importance: Yield helps investors assess the income-generating potential of their investments, important for those seeking regular income from their portfolios.
Time x Amount x YIELD = The Millionaire Code!!!
Ex-dividend Date
Explanation: The ex-dividend date is the date which a stock begins trading without the value of its next dividend payment. Investors who purchase the stock on or after this date will not receive the upcoming dividend.
Importance: Understanding the ex-dividend date is crucial for dividend investors who aim to maximize their income by purchasing stocks before they go ex-dividend. Also, share prices drop by the amount of the dividend on this date which poses an opportunity to add shares at a lower price.
Margin Trading
Explanation: Margin trading involves borrowing money from a broker to purchase securities, allowing investors to leverage their positions. It amplifies both potential gains and losses.
Importance: While margin trading can enhance returns, it also increases risk. Understanding how to use margin responsibly is key to managing investment risk effectively.
Support
Explanation: Support is a price level where a stock tends to find buying interest, preventing it from falling further. It indicates a concentration of demand.
Importance: Identifying support levels helps traders make informed decisions about entry points for buying stocks, as prices are likely to rebound from these levels.
Resistance
Explanation: Resistance is a price level where a stock tends to face selling pressure, preventing it from rising further. It indicates a concentration of supply.
Importance: Recognizing resistance levels is essential for determining potential exit points for selling stocks, as prices are likely to fall back from these levels.
Understanding support and resistance is fundamental for traders and investors. These levels help in making informed decisions about when to enter or exit trades, set stop-loss and take-profit orders, and manage overall risk.
GP’s Wrap-Up
By understanding these 10 fundamental terms, you will be better equipped to navigate the stock market and make informed investment decisions.
Whether you’re just starting or looking to deepen your knowledge, mastering these concepts is a crucial step towards becoming an astute investor and trader.
Happy investing and trading, MFG! Let me know if I can do anything to help.
“There is a thinking stuff from which all things are made, and which, in its original state, permeates, penetrates, and fills the interspaces of the universe.” - The Science of Getting Rich
Always remember, whatever you think about comes about, whatever you focus on grows! - GP
If you need help with setting up your charts and want a mini crash course in the Money Flow, consider GP's course:
"Getting Started with Stock Charts the Money Flow Way" and you will be ready to add shares to your portfolios on stage 1 when the markets are about to possibly rotate and trim profits when opportunities arise. CLICK HERE!
FINANCIAL DISCLAIMER
This is not financial advice, but education to increase awareness. Before making investment decisions, always do thorough research and possibly consult with a financial advisor. The above descriptions are a broad overview and may not capture all nuances associated with each asset.
💎💎💎
Always crushing these articles!