This post Four market terms you need to know appeared first on Daily Reckoning.
One of my big goals with the Rich Life Roadmap is helping you become a more knowledgeable investor.
So today I’d like to tell you about four stock market terms that are often cited, but rarely explained properly, even by investment experts and the financial press…
Misunderstood Term #1: “Market Breadth”
Market breadth is a measure of how many companies in a particular index have gone up vs. how many have gone down.
Take the S&P 500, which contains 500 different constituents. If 300 of those stocks closed in negative territory on a given day, the stock market had negative breadth.
Conversely, if 400 of the stocks went up, market breadth would be considered very positive.
Since market breadth provides a quick way of knowing how widespread buying or selling was, it’s considered a good gauge of investor sentiment.
Misunderstood Term #2: “Limit Order”
There are many different ways to place a stock order, and the suggested approach depends on the particular security you’re going to purchase along with what the market is doing.
Perhaps the most popular way of placing an order is “at the market,” which is the same thing as telling your broker “buy me this investment no matter what the cost and do it as soon as possible.”
Market orders have the distinct advantage of getting your order filled quickly. They also tend to be the cheapest type of order you can place since your broker is not being asked to do very much on your behalf.
The downside of market orders is that you have no way of knowing exactly what price you’re going to pay.
This is generally not a problem when a stock trades millions of shares a day and when its price is expected to remain relatively stable. However, it can be a dangerous method when a stock is thinly traded or moving very rapidly.
Limit orders, on the other hand, give your broker very clear instructions — to buy the specified number of shares at a predetermined price… or better.
The “better” means that the broker can buy the stock at a price that is lower than your specified price or sell it at a price that is higher. Limit orders can be a great way to keep everyone involved in the process honest.
One other thing I’d like to note on placing limit orders with your broker…
You will usually have the option to specify a “day order” or a “good till cancelled” (GTC) order.
As the name implies, a day order will expire at the end of that trading day if it is not filled. A GTC order will remain open until either it is filled or you inform your broker that you no longer wish to place that trade.
Misunderstood Term #3: “Same-Store Sales”
We often hear retailers citing same-store sales. And the entire stock market can move when a bellwether like Wal-Mart releases this monthly number.
Here’s the important thing to understand about same-store sales: they measure results from stores …read more
Source:: Daily Reckoning feed
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