Investing money: The most important stock market terms for beginners

Created: 08/11/2022 15:39

Buy and sell securities on behalf of their investors: brokers.

© Arne Dedert/dpa/dpa-tmn

You don't have to be a financial professional to invest your money in the capital market.

However, it is worth knowing a few important terms.

A small stock exchange ABC offers an initial overview.

Frankfurt – What is the difference between a share and a bond?

What is an accumulation fund?

Why is everyone praising diversification?

And why are investors afraid of the bear?

The stock exchange is a world of its own – in its own terms.

We explain the most important expressions.

From shares to interest: The most important stock market terms at a glance

Share:

With this security, a shareholder acquires shares in a publicly traded company.

The company raises equity this way.

Shareholders can benefit from price increases or distributions.

Bond:

Debt security that represents the right to repayment of a specified amount of money plus interest.

Countries, banks or companies issue bonds to get funds.

Distributing funds:

In contrast to accumulating funds, income such as dividends is distributed to the shareholders and not automatically reinvested.

Bear market:

Longer-lasting, negative stock market trend with falling prices.

Also called a bear market.

Blue Chips:

Shares of leading and particularly high-volume companies that are listed in the major stock indices.

Also called default values.

Broker:

Securities dealer who executes transactions in securities on the stock exchanges on behalf of the investor.

Private investors often use the broker of their house bank or purely online brokers.

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Chart:

Graphic representation of the course of a share index or a single share, for example.

Dax

(Deutscher Aktienindex): The most important German stock index includes the 40 largest companies in Germany in terms of market capitalization that are listed on the Frankfurt Stock Exchange.

The Dax shows the performance of the listed companies.

Mountain and valley alternate: The Dax is the most important German stock index.

© Frank Rumpenhorst/dpa/dpa-tmn

Custody:

place where the bank stores and manages its customers' securities.

Custody fees may apply for this.

Dividend:

Portion of a company's profits that is distributed to shareholders approximately quarterly or annually.

The amount of the dividend is decided at the Annual General Meeting.

Diversification:

Dividing your own assets into different asset classes such as stocks, real estate or precious metals.

A broad diversification can reduce the risk of loss of the investment.

ETF (Exchange Traded Fund)

: Exchange-traded index fund that is passively managed and, for example, replicates a stock index such as the DAX or Dow Jones.

But there are also special ETFs that invest in individual sectors or countries.

This form of passive investing has grown tremendously in popularity.

Fund:

Short for investment fund.

In general: Here, a capital investment company invests its customers' money in various asset classes for the purpose of wealth accumulation.

Clients pay fees for managing the fund.

Growth Stock:

Also referred to as a growth stock.

Often highly valued companies that show strong growth in sales or profits and are at home in future-oriented industries such as IT.

Examples: Amazon, Nvidia, Salesforce.

The opposite is value stocks.

Bulls and bears: In stock exchange jargon, they stand for high-yield or low-yield periods.

© Frank Rumpenhorst/dpa-tmn

Bull market:

longer-lasting, positive stock market trend with prices tending to rise.

Also called a bull market.

(Stock) index:

Illustrates the price or value development of a specific basket of stocks.

Well-known indices are Dax and Dow Jones.

IPO (Initial Public Offering)

: IPO of a company.

Junk bonds:

High-yield bonds from borrowers with poor credit ratings that are classified as risky.

Capital gains tax:

Tax on capital gains from shares, dividends and interest income, which is collected directly by the custodian bank and paid to the tax office.

As a rule, the amount of the tax is a flat rate of 25 percent plus soli and church tax.

P/E (Price Earnings Ratio):

A key figure used to value stocks.

Divide a company's current stock price by its annual earnings per share.

The P/E ratio thus indicates how many times the company's profits a share is currently valued on the stock exchange.

Market capitalization:

The market value of a company.

Calculated from the number of shares multiplied by the share price.

MSCI World:

Global equity index comprising around 1600 stocks from 23 developed countries.

With an ETF on the MSCI World, investors can invest widely in the stock market.

Ensure broad diversification: ETF on the MSCI World Index.

© Zacharie Scheurer/dpa-tmn

Order:

Order to buy or sell a security.

There are different order types, such as buying at a certain price or selling when the price falls below a certain level.

Penny Stock:

Stock with a low price, around less than one euro.

Performance:

Value development of an investment, for example that of an ETF.

Portfolio:

Entirety of all valuables.

Often it is only used to describe the composition of a securities account.

Yield:

Percentage metric that indicates how profitable an investment was over a given period of time.

Savings plan:

Regular, automatic purchase of securities such as ETFs or shares with a specific savings rate that can also be adjusted.

A savings plan is used for passive asset accumulation.

Stock Picking:

Selecting individual stocks with the goal of beating the returns of a benchmark index.

Critics point out that private investors and fund managers are not reliably able to outperform the entire market by actively selecting stocks.

Trading:

Active, often daily updated trading in securities.

The aim is to take advantage of short-term price fluctuations.

The opposite of this is long-term, passive investing with ETFs, for example.

Transaction Costs:

Bank fees for buying and selling securities.

Can differ significantly depending on the provider.

TER (Total Expense Ratio):

The total expense ratio, given as a percentage, provides information about how high the annual fees of an ETF are.

The lower, the better for returns.

Accumulating funds:

In contrast to distributing funds, income such as dividends are directly reinvested here and not paid out to the shareholders.

WKN (securities identification number):

Unique six-digit combination of numbers and letters to identify securities.

Value Stock:

Securities from more cyclical sectors such as industrials, energy and consumer goods.

They often pay out solid dividends, are more cheaply valued and, on the other hand, don't grow as fast as growth stocks.

Examples of value stocks: Coca-Cola, Shell, Pfizer.

It's not just a place where things get busy during turbulent stock market phases: the Frankfurt Stock Exchange.

© Frank Rumpenhorst/dpa-tmn

Volatility:

This indicator shows how much the price of a security fluctuates over a certain period of time.

The greater the volatility, the greater the risk.

Xetra:

Deutsche Börse's electronic trading system.

Interest:

Price paid by a debtor to a creditor for making capital available to him for a specified period of time.

This applies to loans, for example, but also to investments in bonds, for example.