Points: What are they in the Stock Market?

There are different ways to increase wealth and investing is one of them. The stock market also offers a great opportunity for wealth creation for those interested in the market.

Though a lot of people may choose other investment alternatives, the stock market still remains one of the best options and has been able to stand the test of time, unlike other forms of investment.

When rightly understood and one is equipped with the proper knowledge, the stock market offers returns, but people often miss out on this because they really do not know how the market works, the terminologies, and more.

Some are not really concerned with gaining the knowledge, they just put their money in the hands of brokers to make profitable investments for them.

If you desire to be very much involved in the stock market then you should get to be familiar with certain terms.

One of such terms is “Points”.

What are Points in the Stock Market?

If you're speaking about an individual stock or a stock market index, what points mean in the stock market vary.

Stock Points in relation to Individual Stocks

When it comes to individual equities, a point is usually equal to a dollar. When someone says a company's stock has gained or lost X number of points, they're referring to the monetary amount by which the share value has increased or decreased.

For example, suppose someone reports that a company's stock has dropped 15 points. The individual is merely stating that the stock value of the company has decreased by $15.

When someone says that a stock is up 10 points today, it simply indicates that the value of the stock has increased by $10.

If you're interested in foreign stock markets, keep in mind that a point is equal to one unit of the currency you'll be working with. A point on the London Stock Exchange, for instance, represents one pound.

Stock Points in relation to Stock Market Indices

A stock market index is a component of the stock market that measures the difference in the share prices of several firm stocks chosen to assess overall stock market performance.

Experts normally find the sum of the specified underlying firm stocks and divide it by the divisor to create a weighted average, based on the index in consideration.

Three major stock market indexes exist. They include the following: The Nasdaq Composite, S&P500, and the Dow Jones Industrial Average (DJIA).

The Nasdaq Composite comprises nearly all of the Nasdaq stock exchange's trading businesses, whereas the DJIA includes the 30 largest company stocks by market capitalization.

The S&P Index, on the other hand, includes 500 of the largest firm equities.

When people talk about points in the stock market while they're talking about market indexes, they're talking about changes in the indexes as a result of what's going on with the underlying companies.

And these shifts have nothing to do with money. It refers to a whole number that is related to the index value.

Assume that the DJIA has risen 200 points from its previous high of 8,000 points. In that instance, the DJIA index would have risen from 8,000 to 8,200 points.

Typically, such a rise would reflect an increase in the value of the underlying equities on average.

An increase in an identical basket of stocks inside one index may be reflected by a different set of points in another. This is because the indexes differ in composition and calculation methods.

Points provide a broad overview of how the stock market is functioning, but they lack context.

To get the right context, you'll probably need to look at the percentage change of the stocks you're interested in. If you want to make the best investment decision, you need all of the crucial information.

Having looked at what “Points” are, it is also important to know the various terminologies in the stock market, to have a proper guide of what the stock market is all about.

Terminologies in the Stock Market

Here are a few terminologies used in the stock market to give you an idea of what it is all about and keep you abreast with the stock market:

1. Buy. To invest in a firm by purchasing stock. As a trader, you typically buy shares when you believe the price of a company will grow.

2. Sell. To sell the stock that you currently hold. Traders typically sell stocks when they identify an opportunity to profit or believe the stock's climb is coming to an end.

3. Bid. When a market trader makes an offer to buy stock. Traders will place bids on a stock at a specific price.

4. Ask. When a dealer proposes his or her stock for sale at a specific price. If a trader owns shares and wishes to sell them at a certain price, he or she will place an order calling for buyers.

5. Bid-Ask Spread. The gap between the highest and lowest price at which someone is ready to buy or sell shares.

6. Bull Market. A market situation in which stock prices keep rising. Bull markets are characterized by traders' and investors' confidence and excitement.

7. Bear Market. The polar opposite of a bull market is a bear market. It's a market where prices are constantly falling. Bear markets occur when the prognosis for a firm, an industry, or the general economy becomes grim. Many traders and investors are eager to sell their stocks rather than buy them. As a result, prices drop.

8. Limit Order.  A stock market order that specifies that it will only execute at a specific price. A trader could, for example, issue a limit buy order for 150 shares of a company for $8.40. The broker will try to purchase 150 shares for $8.40 or less.

9. Market Order. This stock market order instructs the buyer or seller to buy or sell as soon as possible, at the best price currently available. If there isn't enough volume, market orders can be costly. Never execute market orders if you're trading penny stocks.

10. Good Till Canceled Order. This market order will remain open until the trade is completed or the order is canceled. Also called a GTC order.

11. Day Order. This market order is automatically canceled at market closure if it is not filled throughout the day.

12. Volatility. The statistical measure of a stock's upward or downward movement. Volatile stocks are those that fluctuate drastically in price. They can offer excellent profit potential, but they also carry a higher risk.

13. Liquidity. The ease with which a stock can be bought and sold. You'll find it easier to initiate and exit a position if there are a lot of buyers and sellers actively exchanging stock. The stock has a higher liquidity level.

14. Trade Volume. The total number of shares traded at any one time. More trading volume equals more liquidity, which allows traders to enter and exit positions more readily.

15. Going Long. When you go long, you buy stock in the hopes of profiting from a rise in the stock price.

16. Going Short. When a dealer attempts to profit from the price of a stock falling. Short sellers acquire stock from a stockbroker, sell it, and hope for a drop in the company's stock. The shares are then purchased and returned to the broker.

17. Averaging Down. As the price of a stock falls, a trader buys additional shares, lowering the average price paid for the position. Long-term investors may benefit from averaging down, but active traders should avoid it.

18. Market Capitalization. The total worth of all a company's shares is known as market capitalization or market cap. The market cap of a corporation is $10 million if it has one million shares outstanding and the stock price is $10 per share.

19. IPO. IPO means initial public offering. It occurs when a corporation sells its first stock on the stock exchange.

20. Blue-Chip Stocks. These are large, stable, well-known corporations with familiar names.

21. Mutual Funds. Mutual funds are investment pools where investors pool their money to invest in stocks, bonds, and other financial assets.

22. Stockbroker. An agent who facilitates the purchase and sale of stocks.

23. Dividend. When a firm delivers a percentage of its profits to its shareholders, this is known as dividends. Dividends are typically the focus of long-term shareholders and pensioners.

24. Stock Exchange. A stock exchange is a place where people may buy and sell equities. The New York Stock Exchange (NYSE) and the Nasdaq are the two most well-known stock exchanges.

25. Stock Portfolio. A stock portfolio is a collection of equities owned by an investor.

26. Stock Charts. A graphic representation of the price of a stock, both past, and present. Traders use stock charts to analyze the price activity and trend of a stock.

27. Price Rally. A price rally occurs when the price of a stock climbs at a considerably faster rate.