Beginners definition guide for financial terms

The lives of most people are tied tight with money, unless you’re a person living in an isolated area where there is a high dependence on nature and very little on money; however, the number of such people is very low and is decreasing.

In today’s world, we need to know much more than people thought they needed to know, say, 200 years ago. In order to make right and timely decisions, as well as to protect our rights, we need to know and understand our rights and boundaries. This is especially true for the financial aspects of our life. Everything starts from knowledge; in fact, many people pay a good deal of money for acquiring an education, essentially, investing in their futures in hopes that the benefits of increased knowledge with bring them increased financial security. Let’s have a look at a few financial terms that beginners should know.

Capitalization. Capitalization means the total amount of money that the owner or owners have invested in a business enterprise. It can also mean the sum of money that can be generated after all shares of a company are sold. For example, let’s say a company has 1,000 shares. Each share costs $5 currently. This means that $5 is the capitalization of the company.

Capital stock. Capital stock means the total amount of shares authorized for issue by a company.

Outstanding capital stock. Outstanding capital stock is the amount of shares that have been issued already.

Stock class. Stock class refers to a category of shares. Each category has its rights and restrictions or characteristics.

Securities. Securities refer to a document or documents referring to a stock certificate or bond. These documents prove ownership or creditorship of a person who owns a share or bond.

Share. A share is a certificate representing ownership in a company.

Bond. A bond is a debt security issued by a public body. Bonds usually have a fixed interest and a set date.

Mutual fund. A mutual fund is a professionally managed type of collective instruments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. Mutual funds are open to the public.

Hedge fund. Hedge funds are also professional investment companies but they have some exemptions still being registered with U.S. Securities and Exchange Commission. Hedge funds use high-risk techniques for making extraordinary capital gains. As a class, hedge funds invest in a broad range of investments, from shares, debt and commodities to works of art.

Penny Stock. Penny stock is a stock that trades shares very cheaply, sometimes less than $5 a share. Trades are conducted over the counter (OTC) through quotation services such as the OTCBB or the Pink Sheets. Investing in penny stocks is very risky because legitimate information on these stocks can be difficult to find and stock can be easily manipulated.
Of course, in order to know enough you need to know much more. Investing some time into financial terms and issues can help you save much money in the future.

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.