Understanding Stock Market Behaviour: Lesson 102

This lecture is a continuation of the series we started last month with the objective of bringing to light things about the stock market the average man needs to know.

First, a recap would help us appreciate what we are going to learn in this series.

Last month, we learned about the platform on which stocks or equities, as they are also known, are bought and sold.

In the United States of America, the predominant ones are called the New York Stock Exchange (NYSE) and NASDAQ.

In the United Kingdom, the most popular stock exchange is called the FTSE.

In Germany, the most popular stock exchange is called the DAX, while in Nigeria, we have the Nigerian Stock Exchange managed by NGX Group and FMDQ.

We were exposed to the kinds of financial instruments traded on the stock exchange, from equities to bonds and exchange-traded funds, otherwise known as ETFs.

We were enlightened about factors that cause changes in the prices of equities in the stock market. The type of entry for stocks was also explained to us.

It was revealed that the primary market is for stocks entering the market for the first time, otherwise called the Initial Public Offer (I.P.O), and those of the secondary market, which is basically for shares traded regularly on the floor of the stock exchange.

However, today’s series will present an opportunity for us to familiarize ourselves with some of the terms or languages used by stockbrokers or capital market analysts to explain happenings in the market.

"Sir, most of the terms used are jargon," Tunde, a close friend of mine, told me some months ago.

However, stupid as those terms may sound, you just have to try and understand them if you are going to make any progress in trading or investing your money in the stock market.

Let’s begin:

The stock market is a market that allows people to buy and sell shares, bonds, ETFs, and allows companies to raise capital by way of selling shares.

Annual Report: This a financial statement carrying sensitive but important information aimed at impressing existing shareholders or attracting new ones.

Arbitrage refers to buying and selling the same stock or security in different markets and at different prices. A simple illustration will help you understand this term.

Let us say you buy a USDollar at N568 from one black market operator, then you quickly rush to sell it at a higher price, say N570, to another black market operator, thereby making N2. This is simple enough. But in this case, it is stocks that will be the object of trade.

Averaging Down: It’s a buying opportunity that offers a chance for a buyer to buy more of a particular share when the price goes down.

Ask Price:  Is the price at which your stockbroker is willing to sell per share of a stock.

Bear market: I guess you have heard me mention this word so many times. A bear market is a downward state or trend of the market, i.e., when the market price of the stock market or a particular stock price starts going down.

For example, the Nigerian stock market is in a bear market, which means the stock market index is down. This is the clear opposite of the bull market, which is an uptrend.

Beta refers to the measurement of the relationship between the price of a stock and the movement of the stock market.

If BuaFoods stock has a beta of 1.5, that means that for every 1 point move in the market, BuaFoods stock moves 1.5 points and vice versa.

Blue Chip Stocks refer to the stocks of big companies that regularly pay dividends and have solid financial standing. A good example of blue-chip stocks is ZENITH BANK, MTNN, BUAFOODS, DANGCEMENT, ACCESS, GTCO, TRANSCORP, etc.

Bourse: This is another term for the stock market. This word is used interchangeably with the word "stock market."

Bull market is a period in the market characterized by increasing stock prices. That is, most share prices are increasing, thereby providing an opportunity to either buy and make a profit when you sell or otherwise. It is the opposite of a bear market.

Broker: Refers to a person who buys and sells securities for you, otherwise called a stockbroker.

Bid Price refers to the amount of money a trader is willing to pay or buy per share for a stock. A bid price is the opposite of an Ask price.

Let’s stop here and continue in our next series.

Have a lovely Sunday.