The stock markets can be a confusing sector. In fact, this “alphabet soup” of terms and conditions may even intimidate some from ever investing. It is apparent that understanding the most basic of terms will provide a great foundation to begin a foray into this amazing world. While there are literally hundreds of different phrases, let us take a look at a handful of the most commonly used.
A flotation signifies the date when a company is planning on going to market. As the day approaches, there will normally be a predicted flotation price which is substantially higher than the amount offered before a public listing.
The term “flotation” now leads us into the definition of an IPO. The acronym IPO stands for “Initial Public Offering”. As you may have already guessed, this is the price that each share will be worth on the first day of public listing. After this date, the price can fluctuate substantially.
This a market within the United States that is used to host companies which may not boast the size or the levels of financial transparency to trade on larger platforms such as the Dow Jones or the NASDAQ. In the past, some investors would borrow money against a life cover policy to invest in such companies. While the prices per share may be pennies, the risk that a firm will founder is quite high. This area is normally best to avoid.
The FTSE is an abbreviation for the Financial Times Stock Exchange. All of the most reputable companies within the United Kingdom are listed on the FTSE although there are different subcategories such as the FTSE All Share and the FTSE 250. This term is often literally pronounced “footsie”.
A small-cap company is an enterprise that has relatively minimal funds to maintain operations in relation to its larger counterparts. This will obviously differ from market to market and small-capitalisation companies are considered good entry points into a potentially lucrative position. However, it is also a fact that such positions can quickly prove to be illiquid and if the company folds, any invested funds can be lost.
Support and Resistance
These are rather technical terms which hint at the direction of a specific price. Support signifies a point when the price reaches its lowest level within a certain time frame. Many investors will buy in this scenario; assuming that a rise is inevitable. When a share reaches a resistance point, it is seen as attaining a benchmark level. If it “breaks through” the resistance, this is seen as a new support (base) level. Buying before the resistance is broken can prove lucrative if the price continues to rise. However, there is also a chance that this number will not be breached and the value will fall again.
While these are some of the most important terms, there are countless others which are just as critical to understand. So, it is apparent that these phrases are just as pivotal as the prices of a specific position.
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