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Some basic terms you should know about the stock market.

If you’re knowledgeable about the stock market, you stand to profit far more than if you trade based on instinct or “hot picks.” Here are some stock market terms for you.

1)  Arbitrage

Arbitrage refers to buying and selling the same security on different markets and at different price points. For instance, if stock XYZ is trading at $10 on one market and $10.50 on another, the trader could buy X shares for $10 and sell them for $10.50 on the other market, pocketing the difference.

2) Dividend

A portion of a company’s earnings that is paid to shareholders, or people that own that company’s stock, on a quarterly or annual basis. Not all companies pay dividends. For instance, if you trade penny stocks, you’re likely not after dividends.

3) Yield

Often refers to the measure of the return on an investment that is received from the payment of a dividend. This is determined by dividing the annual dividend amount by the price paid for the stock. If you bought stock XYZ for $40 per share and it pays a $1.00-per-year dividend, you have a “yield” of 2.5 percent.

4) Moving Average

A stock’s average price-per-share during a specific period of time is called its moving average. Some common time frames to study in terms of a stock’s moving average include 50- and 200-day moving averages.

5) Rally

A rapid increase in the general price level of the market or of the price of a stock is known as a rally. Depending on the overall environment, it might be called a bull rally or a bear rally. In a bear market, upward trends of as little as 10 percent can qualify as a rally.

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