Market liquidity represents how easily an individual can make a trade within some market (usually the stock market) at stable and transparent prices. Liquid markets are characterized by a high trading volume with no substantial imbalance between the number of buyers and sellers. The stock market is generally considered to have a high market liquidity.
Note: For the liquidity of a specific market, please see “Market Liquidity“
Liquidity is the ease with which some asset can be converted to cash (the most liquid asset). For example, an individual can usually sell some stock and convert it to cash with ease, so stocks are relatively liquid. However, to sell a house and convert it to cash is a lengthy and complicated process, so a house is relatively illiquid.
The bid-ask spread is the difference between the price the buyer is willing to pay and the price the seller is willing to accept for some number of shares of a security. For example, if the average bid for stock $XYZ is $5.25, and the average ask is $5.75, then the spread is $5.75 – $5.25 = $0.50. Bid-ask spread is a strong indicator of market liquidity, such that a lower spread indicates higher liquidity.
Blue chip stocks represent large, well-established, and stable companies. They have strong reputations, dominate their industries, and tend to have market capitalizations of several billion dollars. The Dow Jones Industrial Average is composed of blue chip stocks.
An investor who wants to sell a particular security offers an ask, in which they tell the market how much money they are willing to accept for a certain number of shares of some security. This must be balanced with the bid, which is the offer made by the buyer. In order for a trade to be executed, the price must be greater than or equal to the ask, and less than or equal to the bid.
An investor who wants to buy a particular security makes a bid, in which they tell the market how much money they are willing to pay for a certain number of shares of some security. This must be balanced with the ask, which is the offer made by the seller. In order for a trade to be executed, the price must be less than or equal to the bid, and greater than or equal to the ask.
A stockbroker is an individual (usually from a large firm), who fulfills trades on your behalf. In exchange for a fee, they execute buy and sell orders that you placed.
Beta, β or the beta coefficient is one of “The Greeks”. It describes how much the movement of the market as a whole affects the movement of a given stock. For instance, a stock with a beta of 0.75 moves up or down 75 points for every 100 points that the market as a whole moves. A beta that is greater than one indicates a volatile stock. In some cases, beta can be negative (i.e. the price of the security increases when the rest of the market falls, or vice versa), but this is extremely rare.
With 2020 just around the corner, we are excited to kick financial literacy education into high-gear! Along with introducing new content like webinars, blog posts, and more, our term-of-the-month will become a term-of-the-week! See you in 2020!
Moving Average is a technique to show trends in data while minimizing the effect of random changes. For instance, in the case a the price of a stock, a 10-day Moving Average would be the computed as the average of the prices over the last 10 days. Each day, the Moving Average is updated by dropping the oldest price and including the current day’s (newest) price in the average. Moving Averages can be computed for various durations and using various methods.
Ventures in-vesting! 