Stock Market Key Terms - II

Stock

Stock is ownership. A business is divided up into shares of stock and parts of the company (the shares) are sold to investors to raise money.

A holder of stock (a shareholder) has a claim on a part of the corporation's assets and earnings. In other words, a shareholder is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares.

For example, if a company has 1000 shares of stock outstanding, and one person owns 100 shares, that person would own and have claim to 10% of the company's assets.

Stock Signals

These are recommendation given by the experts about any stock. Various types of recommendations are given below:

Strong Buy: Very high recommendation given by the analyst to purchase a specific security.

Buy: A recommendation to purchase a specific security. "Buy" is better than neutral but worse than strong buy.

Buy and Hold: A passive investment strategy in which an investor buys stocks and holds them for a long period of time, regardless of fluctuations in the market. An investor who employs a buy-and-hold strategy actively selects stocks, but once in a position, is not concerned with short-term price movements and technical indicators.

Hold: An analyst recommendation to neither buy nor sell a security. Exact definitions vary by brokerage, but generally this rating is better than sell and worse than buy. The hold rating is right in the middle of the rating system. It means that if you own a security you still shouldn't sell, but you also shouldn't buy the security if you don't own it already. Also known as neutral.

Sell: A recommendation to sell a particular security. This rating is generally worse than neutral, but better than strong sell.

Stop Limit Order

An order placed with a broker to buy or sell at a specified price (or better) after a given stop price has been reached or passed. This is essentially a combination of a stop order and a limit order into one order and allows the investor to better control their entry or exit price of a security.

A stop order is an order that becomes executable once a set price has been reached and is filled at the current market price. A limit order is one that limits the entry or exit price to a set price or better. By combining the two orders it prevents the stop order from being executed at the market price which could be much different then what the investor originally wanted by putting a limit on the price.

For example lets assume that ABC Inc. is trading at $40 and an investor has put in a stop-limit order to buy at $45. If the price of ABC Inc. moves above $45 the stop order to buy the security becomes executable but because there is also a limit order attached it limits the price that the shares can be purchased to $45 or less.

In terms of buying a stock it allows investors to buy when the stock has upward momentum behind (moving from $40 to $45).

Stop-Loss Order

An order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor's loss on a security position. This is sometimes called a "stop-market order".

In other words, setting a stop-loss order for 10% below the price you paid for the stock would limit your loss to 10%.

It's also a great idea to use a stop order before you leave for holidays or enter a situation in which you will be unable to watch your stocks for an extended period of time.

Under performed

An analyst recommendation that means a stock is expected to do slightly worse than the market return. Also known as market under perform moderate sell, or weak hold.

Exact definitions vary between brokerages

Upgrade

A positive change in the rating of a security. For example, an analyst may upgrade a stock rating from 'buy' to 'strong buy'.