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December 5, 2009
Trading Terminology
There is a lot of trading terminology that you must learn before you can begin to invest in the stock market. In today’s article we discuss some trading terminology to get you started, but there is a lot more to learn before you begin to invest money in stocks.

Fundamental analysisfundamental analysis is a method used by investors to analyze the value of a security. Investors examine a company’s financials including sales and earnings, growth, debt and assets. They also look at things such as the company’s operations including management, products and services, as well as the company’s competition in the market place.

Technical analysistechnical analysis is used to predict future market trends and price movements of stocks. Technical analysts evaluate stocks and other securities by analyzing market data such as price and volume through the use of stock charts. The intrinsic or fundamental value of a company is not studied because technical analysts believe they can predict the future price of stocks based on historical prices and other variables.

Capital gain – capital gain is the amount in which an asset’s selling price exceeds its initial purchase price. Capital gains typically receive favorable tax treatment when compared to ordinary gains. Realized capital gains is profit as a result of selling an investment whereas unrealized capital gains is an investment that has not yet been sold, but if it were sold it would result in profits.

Equity – equity is the value of assets minus the total liabilities and it can be described as ownership interest in a company that is in the form of common stocks or preferred stocks. The trading term equity is also referred to as “net worth “or “shareholder’s equity,” and when referring to equity in the context of a brokerage account, it equals the net value of the account.

Current market value – the current market value is the present worth of a portfolio of securities at the current market price.

Diversificationportfolio diversification is the reduction of risk through the combination of investments that are unlikely to move in the same direction. Basically it allows for more consistency in performance under changing and unpredictable market conditions and reduces the upside and downside potential. A diversified portfolio may include stocks, bonds, real estate and gold. A diversified stock portfolio should include stock in companies from different industries, in the event one industry struggles.

There is a lot more trading terminology to learn about as it relates to the stock market. Continue your trading education to determine how you would like to invest.

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