Stock Vocabulary and Terms for the Beginning Investor

Securities – A general term encompassing all mediums of investments of financial value. There are two prominent types of securities: debt and equity. Some examples of debt securities are banknotes and bonds. An example of an equity security is stocks.

Stock Exchange – An organization, company, or corporation that organizes a location where stock brokers can trade securities, specifically stocks. Stock exchanges are located across the world, with some of the most important being the New York Stock Exchange, the London Stock Exchange, and the Tokyo Stock Exchange.

Stock Market – A location, referred to as ‘market’, where stocks are bought and sold. These can be private or public.

Stock – Owning “stock” in a company is buying into that company and owning a percentage of that company. Business ventures are then financed by these corporations and businesses resulting in, hopefully, increased value of an investors share of stock. Synonyms for “stocks” are “shares of a company”, or simply, “shares.” Under the broad title of “stock” there lie a couple of specific types that are available to investors, each having its unique features and requirements.

Common Stock – A type of stock representing primary ownership of the company from which it was purchased. Investors who have purchased stock of this type are referred to as shareholders who have certain rights like being allowed to vote on issues pertaining to the performance of the company. Depending on the percentage of stock owned, an investor will have varying degrees of voting power and liability with the business.

Preferred Stock – A more specific type of stock, still representing ownership in a company, but also carrying certain terms that are outlined in a Certificate of Designation, outlining the rights to which an investor is entitled. Purchasers of preferred stock may forgo their right to voting privileges; however, they will often be paid dividends before common stock holders receive any return. Occasionally, investors will have the option to exchange their preferred stock into common stock. If a company happens to go bankrupt, preferred stock holders receive payment before common stock holders and after debt holders.

Dividends – A company will pay its shareholders through dividends. Dividends are rewarded from a percentage of the profit the company has earned. Whenever a company returns a profit they can either decide to reinvest it in the company or pay its shareholders in dividends. Paying dividends to shareholders is considered spreading the assets of the company, and is recorded as neither an expense, nor a cost. In most dividends paying situations the company will give its shareholders cash, but it can also come in the form of additional stock.

SEC – This acronym stands for the Securities and Exchange Commission. This commission is a branch of the U.S. government that regulates and enforces the federal laws that govern the stock market. The SEC strives to ensure ethical and fair practices among business and investors. This non-partisan agency enforces laws through lawsuits and civil action.

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