Getting into stock investing can be intimidating with all the terms flying around. But don’t worry.

We’ve put together this simple guide to the 10 essential stock market terms every beginner needs to know, so you can start investing with confidence.

Stock (Share)

When you buy a stock, you’re buying a share of a company. Think of it as owning a tiny part of a business.

If the company does well, your stock’s value usually goes up. If not, well… it can go down. Owning stocks is one of the best ways to build wealth over time.

Bull Market vs. Bear Market

These are the two most common terms you’ll hear about market conditions.

A bull market means prices are going up. It shows that investors are feeling good about the market at that given time.

Meanwhile, a bear market means that prices are falling, and it signifies that things are getting a little scary and investors tend pulling back.

Understanding whether we’re in a bull or bear market helps you manage your expectations and decide when to invest.

P/E Ratio (Price-to-Earnings Ratio)

This ratio helps you understand if a stock is overvalued or undervalued. It’s calculated by dividing the stock price by the earnings per share (EPS).

A high P/E could mean the stock is expensive, while a low P/E might indicate a bargain, but it could also mean the company is struggling.

Dividend

Some stocks pay dividends, which are a portion of a company’s profits paid out to shareholders.

It is a great way to earn passive income while holding onto your stocks. Not all companies pay dividends, but for those that do, it’s a good sign they’re financially stable.

Market Capitalization (Market Cap)

Market cap refers to the total value of all outstanding shares of a company. It’s calculated by multiplying the stock price by the number of shares.

It is used to categorize companies into:

Large-cap which are big companies (like Apple or Microsoft).
Mid-cap, basically medium-sized companies.
Small-cap, which are smaller companies with more growth potential but also more risk.

Market cap gives you an idea of a company’s size and stability.

Risk Tolerance

Your risk tolerance is how much risk you’re comfortable taking. If you’re okay with high risk and the potential for big rewards, you might want to focus on growth stocks.

If you’re a little more cautious, blue-chip stocks or bonds might be more your speed.

Your risk tolerance will help you decide what kinds of stocks and assets to invest in.