Share features explained

A share has several features that you should understand and get familiar with. The share features are enumerated and defined below.

·         Last Price - The last price the share was traded at.

·         Ask Price - The price at which you can buy your stock.

·         Bid Price - The price at which you can sell your stock.

Note: There is always a small difference between the bid and the ask price, this is where the market makers earn money.

52 week high

The highest price the share attained during the last 52 weeks.

52 week low

The lowest price the share attained during the last 52 weeks.

Stock ticker symbol

The ticker symbol is the abbreviated company name -- the 2-4 letter symbols beside the price of the share.

Examples:

·         MSFT = Microsoft

·         VOD = Vodafone

The ticker symbol is usually required when looking for a share. Ticker symbols are particularly handy online when entering shares into portfolio or watch list.

Volume

The volume of a share refers to the number of times the share has been traded within the day. The greater the volume, the more liquid the stock is. As such, the share is more stable since more people are willing to buy or sell the share. Meaning, it is a tradable stock you would want to acquire and then sell readily when you need to get rid of it.

If a stock has an average volume of 5 million, it means, on average, 5 million shares are traded daily.

Average volume is generally determined within a 90-day period.

Note: Low volume stock should be avoided when buying a share as it can lead to liquidity problems. This is because when you need to sell the share and no one on the other end wants to buy it, then the price can easily go down 0.5-2% or more before you can dispose of it.

Market capitalization

The market capitalization refers to the worth of the company based on its issued share capital. The formula for computing market capitalization is (share price X no. of shares in issue).

Companies with huge market capitalization can directly affect the trend of the stock market, particularly in the UK where there are fewer companies and where the bigger companies take up a large percentage of the total market capitalization.

The market capitalization of a company is a measure whether it makes it into certain indices or not, i.e., FTSE 100. In general, the lower the market capitalization of a company, the less liquid its share is.

Note: To get the hang of the notion of shares, I suggest opening up a free practice account. You can trade shares with 'virtual' money, which allows you to practice trading without losing a penny and to learn how much money you can make and lose in a short time (beside, it is exciting to buy and sell shares for the first time!!).

Why do stock prices move up and down?

The primary reason why a company's stock price moves up and down is supply and demand.

A share price goes up when…

·         A company makes big profits.

·         Many people want to buy the shares to get the rewards of the profits.

·         Few people want to sell the shares.

·         Only a few shares are available to buy.

A share price goes down when…

·         A company makes some losses.

·         Many want to sell the shares.

·         Few people want to buy the shares.

·         Too many shares are available.

However, there are some external factors that influence a company's stock value. One popular factor that is a fairly recent occurrence is the recession. Others include inflation rates, interest rates, job cuts, company mergers, natural disasters, changes in company management, downsizing, etc.