Technical Analysis
Technical analysis is the process of predicting stock price movements based on patterns in the historical stock prices. The company itself is irrelevant, since all the data that is required to make the prediction is contained in these historical prices. An example is moving averages, which take the average stock price over the last set (20 days gives a more volatile line, 100 is more smoothed) number of days, and this line is plotted as time goes by. If the current stock price is above the average of the last set number of days, this can be seen as a buying signal, and if it is below, some believe this to be a signal to sell the stock.
Fundamental Analysis
Fundamental analysis is an alternate method of predicting future stock price movements, or target prices, but unlike technical analysis it is based purely on the nature of the company. Relevant factors include how much debt it has, what it buys or sells and how stable its income stream is. Research analysts consider these factors to generate a target price for the company, often a 12 month estimate, and companies that are trading below this target price are often given strong buy recommendations. Many traders combine fundamental and technical analysis when making trading or investing decisions.
Bid/Ask Spread
Whenever the price of an asset is quoted, you are quoted a buy/bid (higher) and sell/ask (lower) price. If you want to buy the asset, you will buy at the higher price, and if you want to sell it then you will sell it at the lower price. If you are ever unsure, remember that you will transact at the worst price on your screen. The difference between these two prices is known as the spread, and it ensures that anyone buying and then selling an asset instantaneously cannot make money. It also represents the profit that a company buying and selling CFDs (IG Markets) makes, since they sell to anyone interested at the higher price (the price that you buy it off them at) and they buy it back (when you sell it to them) at the lower price. This is the reason that there are often no commissions on forex or indices trading with CFD providers.
Dividend Yield
Some companies pay a share of their earnings out as dividends, split evenly amongst the shareholders. There is no obligation to pay this dividend, only once it has been announced, and this information is made public before the date that it is paid. The yield is calculated by dividing the dividend by the current share price, and for those investing in a company for the long run, the dividend yield represents a reliable return that you can expect for the year. Dividends are payable to all those holding the share the day before the ex dividend date, and are physically paid to the owner in the following weeks, during which time you can sell the stock and not lose your entitlement to the dividend.
