The capital market is a complex and dynamic environment with its own language and terminology. Understanding the commonly used terms in the capital market is essential for investors, traders, and financial professionals. Here are some of the commonly used terms in the capital market:
- Stock: A stock, also known as a share or equity, represents ownership in a company. When an investor buys a stock, they become part-owners of the company and are entitled to a share of its profits in the form of dividends.
- Bond: A bond is a debt security issued by a company, government, or other entity to raise capital. When an investor buys a bond, they are lending money to the issuer and receive periodic interest payments until the bond matures.
- Mutual Fund: A mutual fund is an investment vehicle that pools money from multiple investors and invests in a portfolio of stocks, bonds, or other securities. Mutual funds are managed by professional fund managers who aim to generate returns for investors while managing risk.
- Exchange-Traded Fund (ETF): An ETF is similar to a mutual fund but is traded on stock exchanges like a stock. ETFs invest in a diversified portfolio of stocks, bonds, or other securities and aim to track the performance of a specific index or sector.
- Derivative: A derivative is a financial instrument that derives its value from an underlying asset, such as stocks, bonds, commodities, or currencies. Derivatives include options, futures, and swaps, which are used for hedging, speculation, and arbitrage.
- Index: An index is a statistical measure of the performance of a specific market or sector. Indices are used to track the performance of stocks, bonds, or other securities and are used as benchmarks for mutual funds and ETFs.
- Market Capitalization: Market capitalization is the total value of a company’s outstanding shares of stock. It is calculated by multiplying the number of outstanding shares by the current market price per share.
- Dividend: A dividend is a distribution of a portion of a company’s earnings to its shareholders. Dividends are typically paid out in cash or additional shares of stock.
- Price-to-Earnings Ratio (P/E Ratio): The P/E ratio is a valuation metric used to measure a company’s current share price relative to its earnings per share. It is calculated by dividing the current market price per share by the earnings per share.
- Yield: Yield is the annual return on an investment, expressed as a percentage of the investment’s current market value. It is calculated by dividing the annual income generated by the investment by its current market value.
In conclusion, the capital market is a complex environment with its own language and terminology. Understanding the commonly used terms in the capital market is essential for investors, traders, and financial professionals. Some of the commonly used terms in the capital market include stocks, bonds, mutual funds, ETFs, derivatives, indices, market capitalization, dividends, P/E ratio, and yield.