A lot of people today invest their own money in shares (owning a small part of a company) either directly through buying the shares themselves on the stock market or indirectly through the people managing their pension scheme investing their money on the stock market for them. The stock market seems to have its own vocabulary which can be confusing for even people who work in the stock market.

In this first of three online exercises on stock market and share vocabulary, we will look at and explain the meaning of some essential terminology that is used in English when talking about the stock market and shares.

Some of the vocabulary you will learn here is a little basic. I have included them in this first exercise because it is essential to understand what they mean when learning the more advanced stock market vocabulary in the later exercises.

To learn more vocabulary on the stock market do the second part of this exercise on shares & stock market vocabulary.

In addition, you can also improve your knowledge of the English vocabulary used for banking or insurance or the economy in our online exercises on these financial topics.

Exercise: Explaining stock market terminology

In the following conversation between two work colleagues, Peter explains to Juan how the stock market works and the meaning of some different words and terms used when talking about it.

From the context, try to guess what the meaning of the words/phrases in bold are. Then do the quiz at the end to check if you are right.

Juan:'I'm thinking about investing my money in the stock market and buying some shares. The problem is that I have no idea about it. For example, what's the difference between stocks and shares?'

Peter:'Basically, they are the same thing. They mean the ownership of part of a company. In Britain, we normally say shares, but in North America they use both.'

Juan:'Can I buy shares for any company in the world on the stock market?'

Peter:'No, you can only buy stocks and shares on the stock market for public limited companies (called 'public corporations' in America). These are generally big companies which allow anybody to buy shares in them. In fact, only companies which are public limited companies are on the stock market. The majority of companies in the world are private limited companies (called 'private corporations' in America), which don't sell their shares on the stock market.'

Juan:'So, how do I buy stocks or shares in these public limited companies? Can I do it myself by calling the companies?'

Peter:'No, you don't have the permission to buy shares yourself, you have to get a stockbroker to buy or sell shares for you. A stockbroker is licenced/registered to trade stocks and shares (which means to buy or sell stocks and shares) on stock exchanges. So you have to set up an account with a stockbroker.'

Juan:'Ok. So what's the difference between a stock exchange and the stock market?'

Peter:'The stock market means anywhere where stocks and shares are traded, but a stock exchange means an actual location/organisation where they are traded. For example, the actual place/organisation in London where stocks and shares are traded for some companies is called the London Stock Exchange. In New York, you have the New York Stock Exchange and the Nasdaq Stock Exchange. All three stock exchanges are part of the stock market.'

Juan:'So why does New York have two stock exchanges?'

Peter:'There are actually more in New York. Each stock exchange has different companies listed on them. So, if you want to buy shares in Google your stockbroker has to use the Nasdaq Stock Exchange, because that's where Google is listed and their shares are traded. But if you want to buy shares in Ford, your stockbroker has to use the New York Stock Exchange, because that's the stock exchange where Ford is listed.'

Juan:'More complicated than I thought. I would like get a good return from the shares, I want to make a lot of money. Do you have any recommendations on what company's shares I should buy?'

Peter:'I don't know. You should get advice from a stockbroker or look at how a company's shares are performing. Check to see if the share value has increased or decreased. When you own shares in a company you will become a shareholder which means you are a part owner of the company and can vote on who manages or directs the company. You will also receive a dividend on each share you own, which is an extra payment. If the company is making a profit they normally give some of this profit to their shareholders as a dividend. So your return with be a combination of the dividend and the increase or decrease in the share price.'

Juan:'But can I get a higher return on my money if I put my money in the bank from the interest than from the dividend in stocks and shares.'

Peter:'It's safer to put your money in a bank, but you may make more money with stocks and shares. If you want to see how much money you earn on each dollar or pound you have invested, you have to look at the yield. For example, if a banks pays you an interest rate of 2%, you earn 2% on every $1 and this 2% is called the yield. For dividends you have to divide the yearly dividend per share by the amount you paid for the share. So, if a share cost you $2.50 and the yearly dividend is 15 cents, you divide 15 by 250. So the yield for the share is 6%. So this shows you would make a higher return on your money from investing in this company's shares than by putting your money in the the bank.'



Quiz:

Below is a definition/description of each of the words/phrases in bold from the above text (which you can also find in the grey box below). Answer each question with one of these words/phrases in bold. Only use one word/phrase once and write it as it is in the text. Click on the "Check" button at the bottom of the quiz to check your answers.

When the answer is correct, two icons will appear next to the answer. The icon contains extra information about the word/phrase. In the icon, you can listen to the pronunciation of the word/phrase.

Words/phrases to use in the quiz

1. The name of a person who has/owns shares in a company, is

         

Shareholder:
(noun) This is the name for somebody who owns a part of either a 'private limited company' or a 'public limited company'. A 'shareholder' is a person who has/owns/holds shares (a part ownership) in a company. For investing their money in a company (by buying shares), 'shareholders' normally receive an extra payment called a 'dividend' if the company makes a profit (i.e. the company earns more money than it spends). In Spanish: "accionista".

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2. A type of company where its shares are not sold on the stock market, are called

         

Private limited companies:
(noun) A 'private limited company' is a type company whose shares are not traded (sold or bought) on the stock market. 'private limited companies' (which is often shortened to 'Ltd' at the end of a company name, e.g. 'Johnson Cars Ltd') are normally medium to large companies where the owners/shareholders have 'limited liability' (where the owners/shareholders will only lose the money they have invested in the company if the company goes bankrupt/closes down because of financial problems). Companies whose shares can be sold on the stock market (to the public) are called 'public limited companies'. With 'private limited companies', if one of the owners/shareholders wants to sell their shares in the company they first have to offer them to the other owners/shareholders first before offering them to somebody else. The name 'private limited company' is used in the majority of countries where English is spoken except for America. In America, they are often called 'private corporations', but they can also be called other names there as well. In Spanish: "sociedad/compañia limitada privada".

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3. The name for the 'profit' that a company makes and pays to its shareholders, is

         

Dividend:
(noun) A 'dividend' is a payment which companies pay/give to the owners of its shares when it makes a profit. When a company makes a profit, it has to decide what it wants to do with the money. Normally, companies give some of this profit to their shareholders as a 'dividend' on each share they own. For example, if a company pays a 'dividend' of $1.20 on each share, if you own 1000 in the company, you will receive $1,200 in 'dividends'. But often companies keep (or retain) some of this profit. This is called 'retained earnings'. Normally, companies use the money they keep as 'retained earnings' to reinvest in the company (e.g. to buy machinery, other companies, buildings etc...), to save for the future or to pay off debts and loans that they have. In Spanish: "dividendo".

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Dividend:
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4. The actual place where the shares of a company are bought and sold, is called a

         

Stock exchange:
(noun) A 'stock exchange' is the place/organisation where the 'trading' (the buying and selling) of stocks and shares happens. When a company decides to sell its shares to the public, they choose a place/organisation where people can buy its shares from. This is called a 'stock exchange'. There are over a 100 different 'stock exchanges' in the world. New York has 3 different 'stock exchanges' of which the 'New York Stock Exchange' and the 'NASDAQ' are the two most famous. So, if you wanted to buy shares in Microsoft, the only place/organisation you can buy or sell them on is the NASDAQ stock exchange in New York. Although not common, some companies shares are traded (bought and sold) on more than one 'stock exchange'. For example, the shares for the oil company BP are traded on both the London Stock Exchange and the New York Stock Exchange. The 'stock market' has a different meaning to 'stock exchange'. The 'stock market' means all the places/organisations where stocks and shares are bought and sold, which includes all the different 'stock exchanges'. In Spanish: "bolsa de valores".

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5. A different name for 'shares' that is commonly used in America, is

         

Stocks:
(noun) 'stocks' or 'stock' has many different meanings. In this context it means to have an investment in a company where you own a part of the company. It has the same meaning as 'shares'. 'stocks' is commonly used in North America, while 'shares' is commonly used everywhere else. For example, 'I own a lot stock in the company' has the same meaning as 'I own a lot shares in the company'. But there is a difference between the use of 'stocks' and 'shares'. When a company sells the ownership of the company on the stock market, it sells units or pieces with a value/price. Each unit or piece of ownership in a company is called a 'share' (in both North America and the rest of the world). So if you want to tell somebody how many actual units/pieces or 'shares' you have in a company you can say 'I have 500 shares in Apple', but you can't use 'I have 500 stocks in Apple'. 'stock(s)' is not used to specify how many units of ownership or 'shares' you have in a company, but is used to say that you have/own units of ownership or 'shares' in a company. So, both 'I have stock in Apple' and 'I have shares in Apple' are correct. It is a little confusing. In Spanish: "acciones".

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6. A type of company where its shares are sold on the stock market, are called

         

Public limited companies:
(noun) A 'public limited company' is a type company whose shares are traded (sold or bought) on the stock market and can be bought by the 'public'. 'public limited companies' (which is often shortened to 'plc' at the end of a company name, e.g. 'Lloyds plc') are normally large to very large companies where the owners/shareholders have 'limited liability' (where the owners/ shareholders will only lose the money they have invested in the company if the company goes bankrupt/closes down because of financial problems). Companies whose shares aren't and can't be sold on the stock market (to the public) but whose owners/shareholders have limited liability, are called 'private limited companies'. The name 'public limited company' is used in the majority of countries where English is spoken except for America. In America, they are often called 'public corporations', but they can also be called other names there as well. In Spanish: "sociedad/compañia pública de responsabilidad limitada".

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7. A verb that means 'to buy' and 'to sell' that is used in the stock market, is

         

Trade:
(verb) The infinitive is 'to trade'. This verb is commonly used in the stock market. It basically means the process of 'buying' and 'selling'. In the stock market, it means the 'buying' and 'selling' of shares/stock on stock exchanges. 'trade' is also used to say in which stock exchange shares are bought and sold, e.g. 'shares in Apple are traded at the Nasdaq Stock Exchange'. In addition to these, the verb is also used to say at what price shares/stock in a company is being bought and sold at (the market value of the share/stock). To do this, you have to place the preposition 'at' between the verb and the price, e.g. 'shares in Apple are trading at $120.50, down $2.45 from their price this morning'. In Spanish: "comerciar".

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Trade:
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8. A different way to say 'profit' when talking about investing your money which begins with the letter 'R', is

         

Return:
(noun) A 'return' basically means the 'profit' you make/earn (e.g. interest, dividend, increase in value etc...) from investing your money. This can be from buying and selling stocks and shares, bonds, investing in a company, putting your money in a bank etc... Normally, a 'return' is measured as a percentage. 'return' has a very similar meaning to 'yield', but there is a difference in what is included when they are calculated. With stocks and shares, the 'return' combines the 'dividend' (the extra payment you receive for owning a share) and the increase in the share's value on the stock market. With 'yield', only the 'dividend' is used to calculate it and not the increase in share value. For example, with shares in Apple, if you bought its shares in January 2009 when they had a price of $82.33 and then sold them in January 2011 when they had a price of $348.48, the 'return' on your investment would be be nearly 350%. But because Apple didn't pay its shareholders any 'dividends' on the shares they owned at this time, the 'yield' would have been 0%. In Spanish: "retorno/rendimiento/rentabilidad".

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9. A way to say that a company 'is on' a stock exchange, is

         

Listed:
(verb) The infinitive is 'to list'. This verb is commonly used to say that a company's shares/stock is traded (bought and sold) on the stock market. It's a different way of saying that the company is a 'public limited company', e.g. 'Apple is listed on the stock market'. 'list' is more commonly used to say in which stock exchange (e.g. New York Stock Exchange, London Stock Exchange etc...) a company's shares are traded. This verb is used to talk about companies and is normally used in the passive (to be listed), followed by the preposition 'on' and the name of the stock exchange, e.g. 'Apple is listed on the NASDAQ'. In Spanish: "cotizar en bolsa".

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10. The name of the person who buys and sells shares for a client/customer, is

         

Stockbroker:
(noun) A 'stockbroker' is a person who is licenced/registered to trade (buy and sell) stocks and shares, bonds etc... on stock exchanges. Unless you are licensed as 'stockbroker', you can not buy or sell stocks and shares directly. A 'stockbroker' buys and sells shares for their clients and charges a fee/commission each time they trade stocks and shares for them. Some 'stockbrokers' offer their clients advice on which stocks and shares they should buy and sell (these 'stockbrokers' are often called 'full-service brokers'). Other 'stockbrokers' only trade stocks and shares for their clients and don't offer any advice. These are often called 'discount brokers' and charge less fees/commissions to their clients. In Spanish: "corredor/agente de bolsa".

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11. A different way to say 'profit' when talking about investing your money, which begins with the letter 'Y', is

         

Yield:
(noun) A 'yield' basically means the 'profit' you make/earn (e.g. interest or dividend) from investing your money. This can be from buying and selling stocks and shares, bonds, investing in a company, putting your money in a bank etc... Normally, a 'yield' is measured as a percentage. 'yield' has a very similar meaning to 'return', but there is a difference in what is included when they are calculated. With stocks and shares, the 'return' combines the 'dividend' (the extra payment you receive for owning a share) and the increase in the share's value on the stock market. With 'yield', only the 'dividend' is used to calculate it and not the increase in share value. For example, with shares in Apple, if you bought its shares in January 2009 when they had a price of $82.33 and then sold them in January 2011 when they had a price of $348.48, the 'return' on your investment would be be nearly 350%. But because Apple didn't pay its shareholders any 'dividends' on the shares they owned at this time, the 'yield' would have been 0%. 'yields' are normally used when people are comparing different types of investments to see which one offers the highest 'profit'. In Spanish: "rendimiento".

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Yield:
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Now you understand this vocabulary, you are ready to learn some more advanced vocabulary in the second part of this exercise on shares & stock market vocabulary.



Practice

Now that you understand the meaning of the words/phrases and when to use them, practise using them by creating your own sentences with them in English. Also click on the "" icon under each correct answer and listen how each is pronounced correctly.