Glossary — P

Powering up your investment knowledge, one P-term at a time!

Profit

When you buy a stock, you hope its value will increase over time. If it does, you can sell it for a higher price than you bought it for, earning a profit. For example:

• You buy 1 share of XYZ stock for R100 (total cost: R100)
• Sell the share for R120 (total sale: R120)
• Profit: R120 (sale) - R100 (cost) = R20
• Meaning: Your profit is R20, or 20% of your initial investment (R1,000).

Remember, profit is only realised when you sell your shares for a higher price than you bought them for. If the stock price falls, you may incur a loss. Profit Definition Plus Gross, Operating, and Net Profit Explained

Pips

Think of a pip like a single step on a staircase. When you climb the stairs, each step you take represents a small movement upward. In investing, a pip is like one of those small steps, but for prices! If the price moves up one pip, it is like taking one step up the stairs. If it moves down one pip, it is like taking one step down. For example:

• If the price is on 3500 and moves up one pip, it will be on 3501.
• If the price is on 3500 and moves up 100 pips, it will then be on 3600.

The more pips the price moves, the bigger the change in value! So, pips help investors measure and track these small or large price movements, making it easier to buy and sell currencies, stocks, or other assets. Pips are like the tiny building blocks of price changes, and understanding them can help you become a better investor! POSITION A position in an investment refers to the amount of an asset (such as shares, currencies, or commodities) that you own or have borrowed or what price you bought or sold at. Think of it like a seat at a table:

• When you buy an asset, you are taking a "long position" - you are sitting at the table, hoping the value goes up.
• When you sell an asset you do not own (called "short selling"), you are taking a "short position" - you are sitting at the table, hoping the value goes down.

Having a position means:

• You have a stake in the asset's performance.
• You can profit or lose money depending on the asset's price movement.
• You can close your position by selling (if long) or buying back (if short).

Remember: Managing your positions effectively is crucial in investing, as it helps you control risk and maximise potential gains! Position Definition--Short and Long Positions in Financial Markets

Pivot Point

Pivot points are a popular technical analysis tool used by investors to try predict potential levels of support and resistance. The pivot point is calculated by taking the average of the previous day's high, low, and closing prices, and is considered a key level of interest for traders. Signs:

• When the market price is trading above the pivot point, it is considered a bullish sign, indicating that the market is likely to continue moving higher.
• Conversely, when the market price is trading below the pivot point, it is considered a bearish sign, indicating that the market is likely to continue moving lower.

Pivot points can also be used to set entry and exit levels, as well as stop-loss levels. For example:

• An investor might set a buy order above the pivot point and a sell order below it.

Additionally, pivot points can be used in conjunction with other technical analysis tools, such as chart patterns and trend lines, to create a comprehensive investment strategy. Pivot Point: Definition, Formulas, and How to Calculate

Patterns

Also known as market patterns, they are like familiar shapes that appear in the market's price movements. They help traders and investors anticipate what might happen next. Think of them like weather forecasts for the market! The most common patterns are: 1. Trends: Upward or downward

• movements over time

2. Support and Resistance: Price

• levels that act like floors and ceilings

3. Reversals: Changes in direction,

• like a trend turning around

4. Continuation: Patterns that suggest

• a trend will keep going

Pattern: Meaning, Trends, Different Types PRICE-TO-EARNINGS RATIO (P/E) The Price-to-Earnings (P/E) ratio is a key metric used to evaluate a company's stock price relative to its earnings. It is calculated by dividing the current stock price by the company's earnings per share (EPS). Formula:

P/E

Ratio = Stock Price � Earnings Per Share (EPS) In example:

• Stock Price = R100
• Earning Per Share = R10
• P/E Ratio = R100 � R10 = 10

This means that for every rand of earnings, the stock price is R10. A higher P/E ratio indicates that investors are willing to pay more for each rand of earnings, which can indicate high growth expectations. In simple terms:

• P/E ratio shows how much investors are willing to pay for a company's earnings.

A higher ratio means investors are optimistic about the company's future performance.

P/E

Ratio Definition: Price-to-Earnings Ratio Formula and Examples

Preferred Stock

Think of a preferred stock as a VIP ticket, in comparison to ordinary stock: You get priority treatment, a guaranteed return, and a bit more security, but you do not get to participate in the company's decision-making process as much. Here is what makes it special:

• Priority over common stock:
• If the company goes bankrupt, preferred stockholders get paid before common stockholders.
• Fixed dividend payments: Preferred stockholders receive a fixed dividend payment each year, usually higher than what common stockholders get.
• Less voting power: Preferred stockholders typically have limited or no voting rights, unlike common stockholders.

Keep in mind that preferred stocks are generally less risky than common stock, but it also tends to have lower potential for growth and returns. Preferred Stock: What it Is, How it Works

Penny Stock

Penny stocks are shares of small companies that trade for less than $5 per share. Here are some key points to consider:

• Most trade via over-the-counter (OTC) transactions, which can be riskier than major stock exchanges.
• Lack of liquidity makes it difficult to sell stocks and find a fair price.

Penny stocks are highly speculative due to low liquidity, wide price quotes, and small company sizes and also have higher potential for volatility and risk means investors could lose their entire investment. Pros and Cons:

• Advantages include providing funding access for small businesses and room for significant upside.
• Disadvantages include higher volatility, risk of fraud, and limited information on company performance.

In the world of penny stocks, fortunes can be made and lost in a matter of days. While the potential for significant returns is enticing, it is crucial to approach these investments with a clear understanding of the risks and rewards. What Are Penny Stocks? The P-party is over, but it is not the end of the road! There is more to be seen in our next post and each letter will be updated frequently with more relevant terms! Share this post: Sign up for blog updates! Join my email list to receive updates and information. Email address

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