3 Important Stock Trading Terms to Know
When you're first getting started in the stock market, it can feel as though you're stepping into an entirely different world. The financial sector has its own language, it moves at a different pace to the rest of the world, and everything seems to behave differently, depending on which stocks you're interested in.
When you're first getting started in the stock market, it can feel as though you're stepping into an entirely different world. The financial sector has its own language, it moves at a different pace to the rest of the world, and everything seems to behave differently, depending on which stocks you're interested in. For some people, the chaotic world of the stock market, with all its different terms and unique words is an addictive place to be. That's why there are so many people out there that give up their standard jobs and start trading stocks full-time. Of course, whether you want to make a fortune with your stocks, you want to turn trading into a career, or you're just looking for initial insights, the first thing you're going to need is an education. There are plenty of places that you can learn about stock exchanges and trading, from blogs, to social sites like StockTwits review sites and more. To help you get started, here are 3 terms you should know.
The P/E Ratio
The P/E Ratio, otherwise known as the Price-to-Earnings ratio, is one of the most important things you'll need to look out for when you're choosing stocks to trade. It's an indicator of how expensive your stock is. The actual price of a share isn't as helpful as it might seem when you're trying to figure out which investments are right for you. The P/E ratio on a stock is the price for a share, divided by the earnings available per share. It basically tells you how much other investors are paying to get a dollar of profits. In the past, the average P/E ratio has been around 15.7. However, the S&P 500 P/E was 26.25 in 2017. P/E ratios can range from zero, to the triple digits depending on the company you choose.
Dividend Yield
If you find yourself on any financial news sites, you should be able to see the dividend payouts of a company alongside percentages otherwise known as dividend yields. The yield refers to the annual dividend payout when it's divided by the price of the stock. This is the percentage of stock value that an investor will get paid back to them every year. Some of the best dividend-paying stocks on the market today can pay somewhere in the range of 4% or higher. Most stocks will pay out their dividends on a quarterly schedule.
Revenue Growth
Finally, another important term in stock trading is "revenue growth". This simply refers to the total sales that a company has made within a specific period. According to the rules of Wall Street, every stock should show some manner of revenue growth, or at least have a plan in place to demonstrate their growth in the future. While profits are particularly important to most investors, profit growth is a more volatile number to look at, and it's often influenced by one-time only events. Profit growth can come from cutting costs in a business too, which isn't always going to tell you much about the long-term growth of the shares that you're buying.