Investing Basics & Stock Trading Terms

A certificate representing a small slice of ownership in a company. When you buy a share, you become a part-owner (shareholder) and can benefit from the company's growth through price gains and dividends.

Common stock is the standard share and carries voting rights at shareholder meetings. Preferred stock usually has no vote but receives dividends first or in larger amounts. Preferred shares often trade in lower volume, so their price can differ from the common shares of the same company.

e.g. Samsung Electronics (common) and Samsung Electronics Preferred trade as separate tickers.

When a company's shares are registered on an exchange so anyone can buy and sell them. A company must pass the exchange's review to list, and afterward it must regularly disclose earnings and important events.

South Korea's two main stock markets. KOSPI is the main board dominated by large corporations; KOSDAQ is home to many small and venture companies in tech, biotech and similar fields. Each name is also used for the index tracking that market.

Nasdaq and the New York Stock Exchange (NYSE) are the two major U.S. exchanges. The S&P 500 is an index of 500 large U.S. companies and is the most widely used gauge of the U.S. market. Many tech stocks are listed on Nasdaq.

A single number that bundles the prices of many stocks to show how a market or sector is moving. It serves as a benchmark for judging whether your stock did better or worse than the market.

e.g. If the index rises 2% and your stock rises 5%, your stock outperformed the market.

The first traded price of the day (open), the last price (close), the highest price (high) and the lowest price (low). A single candlestick on a chart is drawn from these four prices. LightView reports use the previous trading day's closing price.

The price a buyer is willing to pay (bid) and the price a seller is asking (ask). The smaller the gap between the two, the more active the trading, and the easier it is to buy or sell at the price you want.

A market order executes immediately at the best prices currently available, without you naming a price. A limit order sets the price you want and only executes at that price or better (at or below it to buy, at or above it to sell). A market order in a thinly traded stock can fill at a worse price than you expected.

The regular session is the exchange's standard trading time. U.S. stocks also trade in pre-market and after-hours sessions, so they react early to news such as earnings releases. Volume is thin outside regular hours, so prices can jump sharply. Korea also has extended-hours and alternative-exchange trading, and hours differ by market.

The day cash and shares actually change hands after a trade. Korean stocks settle two business days after the trade (T+2), and U.S. stocks settle one business day after (T+1). It matters for dividends, since you must be on the shareholder register as of the settlement date.

e.g. A Korean stock bought on Monday settles into your account on Wednesday.

The cash held in your brokerage account. When you sell a stock, the proceeds arrive in your cash balance on the settlement date, and until then it can differ from the amount available to withdraw. Margin deposits held for orders also come out of this balance.

A trade in which you buy shares by paying only a deposit and must pay the rest by the settlement date. If you cannot, the broker force-sells the shares (a forced liquidation) to cover it. It is effectively a short-term loan, so the risk is high.

Buying stocks with money borrowed from your broker. If the price falls and the value of your collateral drops below a set ratio, the broker force-sells your shares (a margin call liquidation). When forced selling floods the market in a downturn, it can deepen the drop.

The day the right to the upcoming dividend falls away. Anyone who buys from this day on does not receive that dividend, so the stock price usually opens lower by about the dividend amount. A lower price does not mean a loss, since you still collect the dividend, though tax applies.

e.g. A stock paying a $1 per-share dividend often opens about $1 lower on the ex-dividend date.

The day the right to receive new shares in a rights offering or bonus issue falls away. The price is mechanically adjusted down to reflect the larger share count. The stock may look cheap and jump on the ex-rights day of a bonus issue, but the company's value has not changed.

A classification by market capitalization. Large caps are big and tend to swing less in price. Small and mid caps have more room to grow but can be more volatile and trade in lower volume.

Growth stocks trade at high prices on expectations that sales and earnings will grow fast in the future, more than on current profit. Value stocks trade cheaply relative to their earnings or assets. When interest rates rise, the value of distant future earnings shrinks, so growth stocks tend to be shaken more.

Cyclical stocks are in industries (semiconductors, chemicals, steel, autos and so on) whose earnings jump in good times and fall sharply in bad times. Defensive stocks are in industries with steady demand regardless of the economy (food and beverage, telecom, utilities, consumer staples and so on).

A grouping of companies that do similar business. Stocks in the same sector often move together on issues such as interest rates, raw materials and policy. LightView's main list is also organized by sector and industry group.

A group of stocks that move together because they are tied to a particular issue, such as a policy, a new technology or a political figure. They often rise on expectations rather than earnings, so they can fall quickly once the buzz fades.

Spreading your money across several stocks, industries and assets so a loss in one place has less impact on the whole. Holding several stocks from the same industry gives little diversification, since they can fall together.

Selling at a loss once the price falls to a level you set in advance. The goal is to cut a small loss before it becomes a big one. Many investors set the exit level before they buy.

Buying more shares after the price falls below your purchase price to lower your average cost. If nothing is wrong with the company, gains are larger on a recovery, but if the company has real problems, losses can grow.

e.g. Buying 10 shares at $10 and 10 shares at $8 gives an average cost of $9.

Returning your asset mix to its original target ratios after price moves have thrown it off. You sell some of what has risen a lot and buy what has lagged, which naturally means selling high and buying low.

e.g. If you start at 60% stocks and 40% bonds and stocks drift up to 70%, you sell 10% of the portfolio in stocks and buy bonds.

When an exchange temporarily stops trading in a particular stock. A halt can happen ahead of an important disclosure, after abnormal price moves or when grounds for delisting arise. During a halt you cannot sell even if you want to.

Escalating warning levels that the Korea Exchange attaches to stocks that have risen too sharply in a short time or show abnormal trading. At higher levels, margin trading may be blocked or trading may be briefly halted.

A designation the exchange gives a stock that risks failing listing requirements because of worsening results, audit opinion problems, capital erosion or similar. If the cause is not resolved it can lead to delisting, so treat it as a warning sign.

When a stock is removed from an exchange and can no longer be traded on the market. A final liquidation trading period is sometimes granted just before removal, but the price often falls sharply. In the U.S., a share price staying below $1 for a set period can also be grounds for delisting.

A certificate that lets you buy and sell a foreign company's shares in dollars on a U.S. exchange. How many underlying shares one ADR represents (the ratio) differs by company, so check it when comparing prices.