The world of the stock market is a world of specialized and sometimes complex terms and concepts. Understanding the meaning of these terms and using them properly is useful and necessary for investors and stock market activists. To understand what is going on in the stock market and to succeed in the stock market, you need to become familiar with the language of the stock market. In this article, you will read 4 basic and common definitions in the stock market.
What is the stock market? | What is a stock? | What is technical analysis? | What is fundamental analysis?
1. What is the stock market?
Stock market or Exchange It is a set of markets and exchanges in which certain activities of buying, selling and issuing shares of public joint stock companies are performed. These activities are conducted through formal organized exchanges or over-the-counter (OTC) markets. OTC markets operate under a certain set of rules. In countries where stock trading and other securities are allowed, there may be other places for stock trading.
The terms stock market and stock trading are sometimes used interchangeably; But it must be said that trading and exchanging stocks is a subset of the stock market. When one trades in the stock market, one actually buys and sells the stock of one or more stock trades that are part of the overall stock market.
The types of stock markets in Iran are: stock exchange, over-the-counter, commodity exchange and energy exchange. The stock market or capital market is mainly a place for trading stocks and commercial capital. Tradable funds (ETFs), corporate bonds and derivative securities based on stocks, commodities, currencies and bonds are among the financial securities traded on the stock market.
An example to better understand the concept of stock market
Today you can buy anything online; But there is a specific market for buying any particular product. For example, to buy furniture, the first place that comes to mind is the furniture exchange of the city where you live, to buy fruit, you go to the fruit and vegetable or fruit market, or you buy food from certain stores. These specific markets are where buyers and sellers meet. Markets are places of trade and commerce. Given the large number of sellers in these markets, the prices are also fair. Suppose there is only one furniture store in your area. This furniture store sells its goods at any price it wants; Because customers have no other option to buy furniture other than this furniture store. But when a large number of furniture sellers operate in a common market, they compete to attract customers. In such a market, the prices are clear and the sellers offer their goods to the customers at the lowest prices. In online transactions, the buyer, before buying, compares the prices offered by different sellers and prefers the most appropriate option to buy. Such an approach requires online retailers to be fair in their pricing.
Like other markets, a stock market is a market designated for buying and selling bonds in a secure, controlled, and managed environment. As hundreds of thousands of buyers and sellers come together in the stock market, fair pricing and transparency are guaranteed. In the old stock markets, stock certificates were physically issued and traded on paper; But today, with the advancement of technology, certification and trading in modern stock markets is done electronically.
۲. What is a stock?
take stock It is a document that shows the share and amount of ownership in the stock issuing company. Through shares, the right is created for the shareholder regarding the company’s capital and income. Stock trading is often done on the stock market; Of course, these transactions may also be done privately. Buying and selling stocks is the basis of any stock portfolio. To protect investors’ capital from fraud, stock trading must be conducted in accordance with government regulations. Experience shows that in the long run, stock trading has been superior to other methods of investing. Stocks can be purchased through online stock brokers. Investing in stocks is very different from investing in real estate.
- A stock is a document that shows that the owner of the shares in the company issuing the shares has the right of ownership.
- Companies sell their shares in order to increase the capital needed to operate. The two main types of stocks are: common stock and preferred stock.
- Stock trading takes place mainly on the stock exchange, although private stock trading is also possible. These transactions are the basis of any stock portfolio.
- Over time, stock trading has outperformed other investment methods in the long run.
3. What is technical analysis?
technical analysis Stocks and Trends means the study of stock market information from the past to the present. “Price” and “volume” are among the stock market information.
Technical analysts, using behavioral economics and quantitative analysis, predict future market behavior using past market performance. Graphical patterns and technical (statistical) indicators are two common types of technical analysis.
- Technical analysis of stocks and the process of predicting price changes provide traders with the information they need to make a profit.
- Traders identify entry and exit points for potential trades by applying technical analysis to charts.
- The basic premise of stock technical analysis and the process of predicting change is that the market processes all available information and the information is reflected in the pricing chart.
What does the technical analysis of stocks and trends say?
Technical analysis is a general term. The term includes a variety of strategies for interpreting stock price behavior. Most technical analyzes determine whether the current trend of the stock market will continue or not, and if the current trend does not continue, when will the return from the current trend occur. Some technical analysts use line charts. Others prefer candlestick or candlestick diagrams, and some analysts use bar graphs from mathematical imagery. Most technical analysts use a combination of these tools to identify potential output and input points of the trend.
For example, bar charts can be used to identify a point of entry for a borrower; But to determine the probability of a fall, the trader must also pay attention to the chart of the course of the averages in different time periods.
4. What is fundamental analysis?
Fundamental analysis (FA) is a method of measuring the true value of securities by examining related financial and economic factors. Macroeconomic factors such as the state of the economy and industry conditions and microeconomic factors such as the effectiveness and management of the company are among the factors that affect the real value of securities. Fundamental analysts examine all of these factors. The main purpose of these surveys is to reach the real price of securities. By knowing the true value of securities and comparing it to the current price, the investor realizes whether the securities are more expensive or cheaper.
Fundamental analysis is the opposite of technical analysis. As mentioned, in technical analysis, price trends are predicted by analyzing past market information, such as price and volume.
- Fundamental analysis is a method of determining the true or fair price of a stock.
- Fundamental analysts are looking for stocks that are more expensive or cheaper than their real price.
- If the real price is higher than the market price, the stock is considered cheap and a stock purchase is offered.
- Technical analysts, unlike fundamental analysts, ignore the true value of stocks and examine the trend of stock price changes over time.