Stock Some Terms Explained
There are certain terms used in connection with stock speculation that
are very familiar to those who come in contact with stock brokers, and
yet are not always familiar to those who do business by mail.
Undoubtedly the majority of our readers are familiar with these terms,
but we give these definitions for the benefit of the few who are not
familiar with them.
Trader: A person who buys and sells stocks i
trader. The word probably originated when it was customary to trade one
stock for another and later was used to refer to a person who sold one
stock and bought another. He was a trader; but the person who buys
stocks for a profit and sells them and takes his profit when he gets an
opportunity, may not be a trader in the strict sense of the word.
However, for convenience, we use the word "trader" in this book to refer
to any one who buys or sells stocks.
Speculator: This word refers to a person who buys stocks for profit,
with the expectation of selling at a higher price, without reference to
the earnings of the stock. He may sell first, with the expectation of
buying at a lower price, as explained in Chapter XVII. on "Short
Selling." In many cases where we use the word "trader," it would be more
correct to use the word "speculator."
Investor: An investor differs from a speculator in the fact that he buys
stocks or bonds with the expectation of holding them for some time for
the income to be derived from them, without reference to their
speculative possibilities. We believe that investors always should give
some consideration to the speculative possibilities of their purchases.
It frequently is possible to get speculative profits without increase of
risk or loss of income.
Bull: One who believes that the market price of stocks will advance is
called a bull. Of course, it is possible to be a bull in one stock and a
bear in another. The word is used very frequently with reference to the
market, a bull market meaning a rising market.
Bear: The opposite of a bull is a bear. It refers to a person who
believes that the market value of stocks will decline, and a bear market
is a declining market.
Lambs: "Lambs" refers to that part of the public that knows so little
about stock speculating that they lose all their money sooner or later.
The bulls and bears get them going and coming. If the lambs would read
this book carefully, they would discover reasons why they lose their
money.
Long and Short: Those who +own+ stocks are said to be long, and those
who +owe+ stocks are said to be short. Short selling is explained in
Chapter XVII.
Odd Lot: Stocks on exchanges are sold in certain lots. On the New York
Stock Exchange, 100 shares is a lot; and on the Consolidated Stock
Exchange, 10 shares is a lot. Less than these amounts is an odd lot.
When you sell an odd lot you usually get 1/8 less than the market price;
and when you buy an odd lot, you usually pay 1/8 more than the market
price; that is, 1/8 of a dollar on each share where prices are quoted in
dollars.
Point: It is a common expression to say that a stock went up or down a
point, which means a dollar in a stock that is quoted in dollars, but a
cent in a stock that is quoted in cents, as many of the stocks are on
the New York Curb. In cotton quotations, a point is 1/100 part of a
cent. For instance, if cotton is quoted at 18.12, it means 18 cents and
12/100 of a cent per pound, and if it went up 30 points the quotation
would be 18.42.
Reaction: Every person who has traded in listed stocks probably is
familiar with this word. It means to act in an opposite direction, but
it is used especially to refer to a decline in the price of a stock that
has been going up.
Rally: "Rally" is the opposite of the sense in which "reaction" usually
is used. When a stock is going down and it turns and goes up, it is
called a rally.
Commitment: This term is used referring to a purchase of stock. It is
more commonly used by investment bankers when they contract to buy an
issue, but the term sometimes is used by traders.
Floating Supply: The stock of a company that is in the hands of that
part of the public who is likely to sell, is referred to as floating
supply.
More
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A Correct Basis For Speculating
We maintain that there is only one basis upon which successful speculation can be carried on continually; that is, never to buy a security unless it is selling at a price below that which is warranted by assets, earning power, and prospective futu... Bucket Shops
There has been so much publicity given to bucket shops, nearly everybody is familiar with the term. A broker runs a bucket shop when he sells stock to his clients on margin and either never buys the stock for their accounts, or else sells it immed... Choosing A Broker
It is very important that you choose a good broker. No matter how careful you are, it is possible to make a mistake. However, if you choose a broker who is a member of the New York Stock Exchange, you have eliminated a very large percentage of you... Major Movements In Prices
Stock prices move up and down in cycles. These are the major movements in prices, but there may be many minor movements up and down within the major movements. These stock price movements nearly always precede a change in business conditions; that... Manipulations
Stock prices are influenced largely by manipulation. Years ago when the volume of trading on the New York Stock Exchange was small compared with what it is today, it was possible to influence the entire market by manipulation, but it would be very... Marginal Trading
Most people who trade in stocks buy on margin. The ordinary minimum margin is about 20% of the purchase price, because banks usually lend about 80% of the market value of stocks. If you put up 20% of the purchase price of your stocks with your b... Market Information
Where do you get your market information? Perhaps most people get it from the daily papers. When you look over the financial news of one of the leading metropolitan papers and see how much there is of it, you can get some idea of the enormous volu... Minor Movements In Prices
Within the major movements of stock prices, there always are several minor movements, which are caused by various influences. One of the important causes is the technical condition of the market. Another cause might be called a psychological one. ... Movements In Stock Prices
It is due to the fact that stock prices constantly move up or down that speculation is possible. Sometimes certain stocks remain almost at a standstill for a long period of time, but at least a part of the stocks listed on the Exchanges move eithe... Possibilities Of Profit
What are the possibilities of profit in stock speculation? That question is frequently asked but it is difficult to answer. James R. Keene is quoted as having said: "Many men come to Wall Street to get rich; they always go broke. Others come to Wa... Puts And Calls
A "put" is a negotiable contract giving the holder the privilege to sell a specified number of shares of a certain stock to the maker at a fixed price, within a specified time. A "call" is the exact reverse. It is a negotiable contract giving the ... Short Selling
By short selling, we mean selling a stock that you do not possess, with the intention of buying it later. Short selling in general business is very common, and we think nothing of it. Manufacturers frequently sell goods that are not yet made, to b... Stock Some Terms Explained
There are certain terms used in connection with stock speculation that are very familiar to those who come in contact with stock brokers, and yet are not always familiar to those who do business by mail. Undoubtedly the majority of our readers are... Stop Loss Orders
A "stop-loss" is an order to your broker to sell you out if the market sells down a certain number of points. Many speculators place stop loss orders only two points from the market price. The idea is that when the market starts to go down it is l... Successful Speculation
Success in stock speculation depends upon a few things that are very simple. If you know what to buy, when to buy, and when to sell, and will act in accordance with that knowledge, your success is assured. You may think it is impossible to know... Technical Conditions
Technical conditions refer to the conditions that usually affect the supply and demand, such as short interests, floating supply, and stop loss orders. It is sometimes said that supply and demand must be equal or else there could not be any sal... The Desire To Speculate
It is said that the desire to speculate is very strong in the American people. That is why our country has made greater progress than any other country in the world, because progress is the result of speculation. We are not referring merely to sto... The Money Market And Stock Prices
Perhaps no other one thing influences the movement of stock prices so much, in a large way, as money conditions. It is impossible to have a big bull market without plenty of money. During a bull market nearly all stocks are bought on margin, which... Two Kinds Of Traders
There are two kinds of stock traders. One kind nearly always makes a profit, and the other wins sometimes and loses other times, but eventually loses all if he does not change his methods. The first kind buys stocks on liberal margin or outright a... What Is Speculation?
To speculate is to theorize about something that is uncertain. We can speculate about anything that is uncertain, but we use the word "speculation" in this book with particular reference to the buying and selling of stocks and bonds for the purpos... What Stocks Not To Buy
A great deal more can be said about stocks you should not buy than about stocks you should buy, because the list is very much larger. Stocks not listed on the New York Stock Exchange, as a rule, should not be bought by a careful speculator, but ... What Stocks To Buy
In deciding what stocks to buy, it is well to consider first the classes of stocks, and then what particular stocks you should buy in the classes you select. We would first of all divide all stocks into two classes, those listed on the New York St... When Not To Buy Stocks
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You should sell stocks when the market price is too high. That is a general rule, but it is necessary for you to study all the influences affecting stock prices to be able to decide more accurately when you should sell your stocks. We give you, in...