It will be helpful to understand various terms you will encounter in researching the stock market and individual stocks.
- The “ask price,” also known as the “offer,” is the lowest price you can find when trying to buy shares of a stock.
- The “bid price” is the highest price you can find when trying to sell shares of a stock.
- “Good till canceled” (GTC) describes an order to buy or sell a security at a specified price that remains in effect until you decide to cancel the order (or the trade is executed). This is in contrast to a “day order,” which (if unexecuted) expires at the end of the trading day on which the order was entered.
- A “market order” is a request to buy or sell a security immediately at the best price then available. A market order is likely to be executed promptly. The downside is that your order could be executed at a price higher or lower than what you’re hoping for (particularly when there is little demand for the stock). In short, the execution of a market order is guaranteed but the price is not.
- A “limit order” is a request to buy or sell a security at a specific price or better. Your order will be executed only at the price you specify. The downside is that there is a chance your order will not be executed, should the stock never reach the target price. In short, the price is guaranteed, but the execution is not.
- A “stop order” is an order that becomes a market order once a certain price is reached. These orders are intended to limit losses that can occur as a result of changes in price. With stop orders (or “stop-loss” orders), neither price nor execution is guaranteed.
- “Market capitalization” (or “market cap”) refers to the total value of a company’s outstanding stock. Market cap is determined by multiplying the price of a share of a company’s stock by the number of shares outstanding. For example, if the stock price of a company is $100, and the company has issued 500,000 shares, its market cap would be $50,000,000. This means that a company whose stock price is $7 can have a higher market cap than a company whose stock price is $30, if the first company has at least five times as many shares issued as the second company.