Before jumping into stock market trading, it is important to understand some of the basic concepts of investing that you will be presented with. Here are ten terms all beginner investors should understand:

1. Stocks

Stocks essentially represent part ownership in a company. If you own stock in Company XYZ, you have the ability to lay claim to a portion of that company’s assets or profits. Depending on the type of stock you own, you may have other rights as well (such as voting rights on operating or management decisions).

2. Common Stock

Common stock is also known as “ordinary stock.” This is the type of company stock most often traded. Common stock also carries more risk than preferred stock, as those stockholders won’t receive a portion of the company’s assets until after both creditors and preferred stockholders if the company fails.

3. Preferred Stock

Preferred stock also represents an ownership share in a company. While there can be differences between how dividends are paid out between common and preferred stockholders, the biggest difference is that when assets are liquidated due to financial problems, preferred stockholders are paid before common stockholders.

4. Shares

A share is the unit of measurement for company stock. In other words, when you invest in Company XYZ, you buy stock by purchasing a certain number of ownership shares in the company. Stock prices are listed as per-share prices.

5. ASX

ASX is an acronym for the Australian Securities Exchange. The ASX is the largest stock exchange in Australia, and you must trade through a stockbroker or other licensed or eligible party to buy and sell stocks with companies listed there (such as using online brokers).

6. Stockbrokers

Stockbrokers are financial professionals who are able to offer investment advice, as well as manage your share trades. They should be licensed by the Australian Securities and Investments Commission (ASIC), or they should be employed by a licensed firm. Whether or not they offer stock tips and advice depends on whether you work with a full-service brokerage or a discount brokerage (which only manages the actual trades for you).

7. Online Brokers

Rather than working personally with a stockbroker, many investors turn to online brokers. These are brokerage firms that enable you to make and manage your own trades online.

8. Dividends

When a company earns profit, sometimes that profit is reinvested into the company for future growth, and sometimes a portion of the profit is paid to shareholders. The payments made to shareholders from profit earnings are called dividends. Not all stocks pay dividends (“growth stocks” generally reinvest all profits for continued growth and shareholders profit when they sell those shares later at higher prices resulting from that growth).

9. Capital Gain

Capital gain is the amount you earn if you profit from the sale of your shares. For example, if you purchased stock for $1000 and later sold that stock for $1500, you would have a capital gain of $500 (minus any costs associated with that sale, such as your stockbroker’s fees). You must pay tax on capital gains as you do with other income.

10. Stop Loss

Stop loss orders involve better managing your investment risks by giving specific instructions to your stockbroker to sell when shares reach a set price. This is done to minimise overall losses by automatically pulling out before the stock has a chance to drop further.

Investing in the stock market carries real risks, so take the time to familiarise yourself not only with these basic investing terms, but all facets of the process. Better yet, find a qualified professional to walk you through that process and guide you in your investment decisions.

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