What is the market? Just as is learned in introduction to economics courses, the market for stocks, bonds, commodities, or foreign exchange is comprised of buyers and sellers. The price at which they trade is determined by supply and demand.
The following list breaks down the process further, as can be seen, the prime mover of markets is the perceptions of the people in it.
- The supply market is comprised of buyers and sellers
- price is determined by supply and demand
- Supply and demand are determined by the aggressiveness of the bulls and the bears
- Bullish and bearish actions arise from perceptions of value
notice that actual value is not in the list. What a market should be Worth based on mathematical and economic models is not the deciding factor in the prices in the morning newspaper tables. Technical analysis is positioned to follow the discrepancies between forecast and perceived value.
Basic terms you may need to learn when getting into stock trading are these:
Bull market– the condition of a financial market in which prices are rising or are expected to rise. The term “bull market” is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies, and commodities.
Bear market– A bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment.
Margin of safety– Margin of safety is the difference between the intrinsic value of a stock and its market price. Another definition: In break-even analysis, from the discipline of accounting, margin of safety is how much output or sales level can fall before a business reaches its break-even point.
Index funds and mutual funds– An index fund is a mutual fund or exchange-traded fund designed to follow certain pre-set rules so that the fund can track a specified basket of underlying investments.
Brokerage account– A brokerage account is created by a licensed brokerage firm, that allows an investor to add funds and then the investor can place investment orders. The investor owns the assets contained in the brokerage account but will usually have to claim any taxable income from capital gains.
Broker– This is the entity that lets you buy and sell investments for you. Usually, you pay a fee for this service. There are also plenty of online discount brokers, where you often pay a flat commission per trade.
Bond– A bond is a fixed income investment in which an investor loans money typically corporate or governmental which borrows the funds for a defined period of time at a variable or fixed interest rate. There are many types of bonds out there.
Stock– A stock (also known as “shares” and “equity) is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings. There are two main types of stock: common and preferred.
Blue chip– A company that has a history of solid earnings, increasing dividends, and a great balance sheet.
bluechipstocks 