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Stock Market Term

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25 Stock Market Terms That You Should Know

First of all, it can be difficult to understand the stock market. Although some concepts and terminology will frustrate you, knowing what they mean will undoubtedly be helpful.

Second, learning these stock market words will broaden your knowledge of the industry and make you a more knowledgeable and effective investor.

Table of Contents  

  1. Equity
  2. Initial Public Offering
  3. Market capitalisation
  4. Portfolio
  5. Price-to-Earnings Ratio
  6. Stock split
  7. Trading session
  8. Bull market
  9. Bear market
  10. Face value
  11. Bonus shares
  12. Dividend
  13. Benchmark
  14. Stock exchange:
  15. Over-the-counter:
  16. Liquidity:
  17. Exchange-Traded Funds:
  18. Intra-day trading:
  19. Ask/Offer
  20. Bid
  21. Spread
  22. Broker
  23. Trading Account
  24. Demat account
  25. SEBI

1. Equity

Equity is a concept that is frequently used and significant in stock trading.

It is about:

  • the amount of capital invested by a shareholder in a company
  • stocks of a company

Equivalent ownership in a corporation is provided to the shareholder via equity shares. On the stock or equity markets, these are bought and sold by investors and traders.

2. Initial Public Offering

Initial public offering or IPO is:

  • a private company’s route to go public
  • a way for companies to raise capital 

The IPO process refers to the initial public offering (IPO) of a company’s shares. These can be exchanged in the secondary market after being issued in the main market.

3. Market capitalisation

The whole valuation of a corporation is referred to as market capitalization or market cap. It is determined by:

Market capitalization is calculated by multiplying the current share price by the total number of outstanding shares.

A company’s market capitalization, for instance, would be Rs. 50 crores if there were 1 crore outstanding shares and the current share price was Rs. 50.

Market capitalization is a crucial metric that aids investors in determining the risk and return associated with a share.

4. Portfolio

Portfolio is the total investment holdings of an individual or enterprise. 

It can include

  • different types of securities 
  • Securities of multiple companies of different sectors. 

When it comes to reducing market volatility and absorbing market shocks, diversification might be helpful. An investor should aim to build a portfolio of investments based on their personal risk tolerance and investing goals.

5. Price-to-Earnings Ratio

This ratio is used for valuing a company. 

Using the current share price and earnings per share of a company, the price to earnings ratio calculates the company’s value.

This ratio is also known as:

  • P/E
  • price multiple 
  • earning multiple. 

A high P/E ratio means:

  1. a company’s stock is overvalued or 
  2. investors expect a high future growth rate 

6. Stock split

Because existing shares are split, a stock split increases the total number of outstanding shares of a corporation.

7. Trading session

The period of time that a stock exchange is open for trade is known as a trading session. The majority of stock exchanges in India have trading hours from 9:15 am to 3:30 pm. Orders to buy or sell must be placed within this window of time.

8. Bull market

A stock market is said to be in a bull market when the majority of the stocks have been rising for a respectable amount of time. Investors are typically more upbeat in such market stages.

9. Bear market

A bear market is a stage of the market when stock prices regularly decline for an extended length of time. Usually, prices are anticipated to decline by at least 20% from recent highs. This is primarily related to the market’s current investor mood, which is bearish.

10. Face value

At the time of issuance, each share a firm issues has a face value. The intrinsic value of a share is another name for the face value. The corporation fixes it when issuing shares to raise money. Typically, it comes in amounts of 5, 10, 100, etc.

11. Bonus shares

Bonus shares are extra shares given to shareholders by a firm. The total number of shares in a corporation increases when bonus shares are issued.

12. Dividend

The part of earnings that a business distributes to its shareholders is known as a dividend. This might be sent as:

  1. Cash or
  2. Stocks or
  3. Any other form that the company decides 

Even though many businesses pay dividends to shareholders, it is not necessary for a business to do so after recording earnings. To achieve further expansion, many businesses decide to reinvest their profits.

13. Benchmark

Investors might compare a stock’s performance to a benchmark to determine whether it meets expectations or not. A benchmark is a standard against which the performance of a stock can be compared. To track the performance of stocks, market indexes like the BSE Sensex and NSE Nifty are frequently used as benchmarks.

14. Stock exchange 

A secure exchange for trading securities is a stock market. Here, shares are purchased and sold in accordance with the guidelines established by the stock market authority. By providing investors with access to real-time price information, stock exchanges assist businesses in raising funds. The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are the two main stock exchanges in India.

15. Over-the-counter 

Purchasing and selling shares over-the-counter, or OTC, takes place away from a recognized stock exchange.

Bonds, microcap stocks, derivatives, currencies, and other types of securities could be included. OTC markets enable trading between buyers and sellers by using a dealer-broker network as a middleman.

16. Liquidity 

The term “liquidity” refers to the amount of time and money needed to liquidate or convert an asset into cash.

We can therefore determine a security’s liquidity by how simple it is to sell it.

17. Exchange-Traded Funds

ETFs are mutual funds with passive management that aggregate client funds to make additional investments in securities like equities, bonds, commodities, etc. These funds follow a chosen benchmark index and may, as a result, invest in assets with the same security mix as the index. Due to their low expense ratio and reputation as safer long-term investments, ETFs draw in novice or new investors.

18. Intra-day trading

In intraday trading, positions are closed off before the trading day is over while securities are bought and sold on the same day. Since the buy and sell positions are offset against one another, there is no transfer of ownership of securities.

19. Ask/Offer

The lowest price a seller will accept for a stock is known as the ask price or the offer price. For instance, a stock buyer should estimate the price at which the seller is willing to sell the security. The ask price, or the lowest amount someone could be willing to sell a stock for, enters the picture at this point.

20. Bid

The highest price a potential buyer is willing to offer for a stock is known as the bid price. For instance, if an investor wants to sell a stock, he or she must ascertain the going rate for the stock. The bid price is that sum.

21. Spread

In the stock markets, the price that a seller requests for a security and the price that a buyer is willing to pay for it are typically different. Since the bid is frequently lower than the ask price, this is effectively the difference between the two prices. The spread, often known as the bid-ask spread, is the distinction between the bid and ask prices. The supply and demand for the particular security have the biggest impact on this.

22. Broker

An investor in the stock market can purchase securities through a middleman who connects them to the stock exchange. This middleman is referred to as a broker. In essence, a broker acts as an investor’s agent when buying or selling assets in exchange for a commission.

23. Trading Account

For trading on the stock markets, you need a trading account. It is opened with a stockbroker and functions as a link between an investor’s Demat and bank account. When an investor purchases shares, the investor must transfer the necessary funds from the bank account to the trading account. Only after the money has been credited can a buy transaction be started.

24. Demat account

Another crucial account needed for stock market investing is the Demat account. The stocks or securities are kept in this account in digital form.

25. SEBI

The Indian financial markets are governed and overseen by SEBI, or the Securities and Exchange Board of India. By using ethical procedures, it guarantees effective trading on stock exchanges all over India. By ensuring that stock market players give investors accurate information, it seeks to protect their interests.

Conclusion

Even seasoned investors may not be familiar with all of the components of the stock market because it is a big area. However, reading up on the aforementioned fundamental terminology and their definitions might assist novice investors in developing the necessary confidence to begin making stock market bets.

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