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Equity due-diligence

Before you get into trading, you need to understand the basics. This includes concepts and frequently used terminology in the equities market. You can’t call yourself a true “trader” till you speak the lingo.


Beta - measure of a stock’s volatility relative to the overall market. A large equity index, like the S&P 500, is used as a benchmark and given a Beta value of 1.0. Therefore the Beta value of a stock is a relative measure to the movement of the overall market. If a stock has a higher volatility than the overall market, its Beta value will be greater than 1. If the stock swings less than the market does, its Beta value will be less than 1. Stocks with a high Beta value carry higher risk, but also the potential for a higher return, and vice versa for stocks with a lower Beta value.


Shares outstanding - refers to the total number of shares issued by a company when they went public, including restricted shares (shares that cannot be publicly traded). This value can change if the company chooses to repurchase shares or or sell additional shares. Additionally, if the company has issued any stock options, this number can change in the future too.


Volume - refers to the number of shares or contracts traded for a specific security during market open hours. This measure is used in all the different markets for different asset classes. This is a good measure of an asset’s trading activity and hence liquidity during market hours.


Market Capitalization - refers to the total monetary value of a company’s shares, calculated as number of outstanding shares * per share market price. Essentially, market cap explains the market value of a company. It is also used to describe the size of a public company, relative to other publicly traded companies. Companies can be segmented into the following categories based on their market capitalization: small-cap ($300M - $2B), medium-cap ($2B - $10B), large-cap ($10B - $300B) and mega-cap ($300B and more). Examples of mega-cap companies include Amazon and Apple.


Range - market prices fluctuate throughout the day, month and year. One way to observe price volatility is through the range, either daily or 52 week range (price movement over the last year). The range is calculated for different horizons by taking that specific horizon’s high minus the low. The low price is called the support price and the high price is called the resistance level because if either price is hit, this will cause a large move in the price, down or up. One type of investing (range-bound trading) focuses on trading a security between a defined range over time.


Earnings date - scheduled date for the company to announce quarterly earnings. The markets react based on if earnings expectations will be met, beat or missed.