1. What is the stock market?

Answer: The stock market is a place where investors can buy and sell shares of publicly traded companies. It includes exchanges like the New York Stock Exchange (NYSE) and NASDAQ.

2. What is a stock?

Answer: A stock represents a share in the ownership of a company and constitutes a claim on part of the company’s assets and earnings.

3. What is a share?

Answer: A share is a unit of ownership in a company. When you buy shares of a company, you own a piece of that company.

4. What is a stock exchange?

Answer: A stock exchange is a marketplace where stocks and other securities are bought and sold. The most well-known exchanges are the NYSE and NASDAQ.

5. What is an IPO (Initial Public Offering)?

An IPO means the initial sale of a company’s stock to the public. It helps companies to raise some capital by issuing shares in exchange to the public for the first time.

6. What is a dividend?

Answer: A dividend is a payment a corporation shares with its shareholders, usually out of profits. It is given quarterly or yearly.

7. What is a bull market?

Answer: A bull market is a condition of the market where the stock prices are rising or likely to rise. It is marked by optimism, investor confidence, and an overall increase in economic activity.

8. What is a bear market?

Answer: A bear market is when the stock prices are falling, usually by 20% or more, and there is a general feeling of pessimism or decline in investor confidence.

9. What is market capitalization (market cap)?

Answer: Market cap is the total market value of a company’s outstanding shares of stock. It is calculated by multiplying the stock’s current market price by the number of shares outstanding.

10. What is a stock index?

Answer: A stock index is an arithmetic measure of part of the stock market, determined using the price quotations of selected stocks. The well-known indexes are the Dow Jones Industrial Average, S&P 500, and NASDAQ Composite.

11. What is a blue-chip stock?

Answer: Blue chips refer to stocks that are shares issued by big and financially solid corporations with a background of reliable and consistent performance. They pay large dividends as well.

12. What is a stock broker?

Answer: A stock broker is a person or company that accepts and executes buy and sell orders for stocks and other securities on behalf of investors.

13. What is a market order?

Answer: A market order is an order to buy or sell a stock at the best available current price in the market. It is executed immediately.

14. What is a limit order?

Answer: A limit order is an order to buy or sell a stock at a specific price or better. It will only be executed at the specified price or if the price becomes more favorable.

15. What is a stop order (stop-loss order)?

Answer: A stop order is a buy or sell order based on a price the investor chooses to pay or get for the stock. They can be used for limiting loss; when a price of a stock falls to some level, one sells.

16. Common and preferred stock differ in several ways:

Answer: Common stock grants voters voting rights as well as dividend potential. The preferred stock often offers a specific dividend rate as well as is paid ahead of common stock at the time of liquidation and does not issue voting rights.

17. What is a stock split?

Answer: A stock split occurs when a company issues more shares to shareholders, increasing the total number of shares in circulation. A 2-for-1 stock split, for example, would double the number of shares while halving the stock price.

18. What is a reverse stock split?

Answer: A reverse stock split is the merging of shares by a firm, thus reducing the number of outstanding shares and, consequently, boosting the stock price. An example of this is in a 1-for-2 reverse split, where two shares are combined into one but the stock price doubles.

19. What is an ETF?

Answer: An ETF is a type of investment fund that holds a collection of stocks or other assets and trades on an exchange, similar to a stock. It allows investors to diversify their portfolio by purchasing a single security.

20. What is a mutual fund?

Answer: A mutual fund is an investment vehicle that pools money from several investors to purchase securities, such as stocks or bonds. It is managed by a professional fund manager.

21. What is a P/E ratio (Price-to-Earnings Ratio)?

Answer: The P/E ratio is a measure of a company’s stock price relative to its earnings per share (EPS). It is used to evaluate whether a stock is overvalued or undervalued.

22. What is the dividend yield?

Answer: The dividend yield is a financial ratio that shows how much money a company returns to shareholders in the form of dividends, relative to its stock price. It is calculated as annual dividends divided by the stock price.

23. What is a growth stock?

Answer: A growth stock is a stock from a company that is expected to grow its earnings at an above-average rate compared to other companies. These stocks typically reinvest their profits into the business rather than paying dividends.

24. What is a value stock?

Answer: A value stock is the one which, relative to intrinsic value, appears to be under-priced due to prevailing market conditions. Such stocks often have relatively low P/E and sometimes dividend pay-outs.

25. What is a margin account?

Answer: A margin account enables an investor to borrow money from a broker to purchase securities. While this can be a way of increasing potential returns, it does amplify risks. The investor is obligated to pay back the borrowed funds regardless of how the investments perform.

26. What is short selling?

Answer: Short selling is the practice of borrowing shares of a stock and selling them with the intention of buying them back at a lower price in the future. It’s used to profit from a decline in stock price but carries significant risk.

27. What is liquidity in the stock market?

Answer: Liquidity has been defined as the ease with which an asset, like a stock, can be purchased or sold without significantly affecting its price. The price of stocks with high liquidity can change very little when selling or buying. 

28. What is volatility?

Answer: Volatility refers to the degree of variation in a stock’s price over time. High volatility means that the stock price fluctuates frequently and widely, while low volatility means the price remains relatively stable.

29. What is the difference between primary and secondary markets?

Answer: In the primary market, securities are first sold to the public (e.g., in an IPO), while in the secondary market, these securities are traded among investors after the initial offering (e.g., the NYSE or NASDAQ).

30. What is insider trading?

Answer: Insider trading is the illegal practice of buying or selling stocks based on non-public, material information about the company. It is considered unethical and is regulated by financial authorities.