STOCK MARKET TERMINOLOGY FOR BEGINNERS

In this article, I will cover stock market terminology for beginners, Indian stock market terminology, and stock market terms in general.

Let us first look at some fascinating facts about stock markets:

• The first stock market in the world was established in 1653, and it is the oldest stock exchange in existence – The Amsterdam Stock Exchange.
• There are 60 major stock exchanges in the world.
• The biggest stock exchange in the world is the New York Stock Exchange, established was on 8^th March 1817. Its total worth adds up to $28.19 Trillion.
• There are 23 stock exchanges in India, out of which 2 are the major exchanges and are recognized worldwide.

Let us first cover the basics of the stock market, before we get into stock market terms.

What is a stock market?

A market where shares (and few other securities) are traded. It is a secondary market. 

What is a secondary market?

A market where securities are traded after being issued by the company.
Sort of like a second-hand market, where traders buy and sell the securities from each other and no involvement of the issuing company.

Why do companies issue shares?

Easy, to raise money for their capital requirements.

What are these shares?

These shares represent the ownership of the issuing organization.
One share = One unit of ownership.
Company gets the funds for its requirements and people get the ownership of the company. (Not the entire ownership though)

Who regulates these markets?

SEBI regulates the Indian stock markets. SEBI is short for The Securities and Exchange Board of India.

When will we begin with the main topic?

Now?

(P.S – You might get a lot of – “This might be a new stock market terminology for beginners, or one of the easiest stock market terms, or phrases of such sort. Do not fret, it is done for our readers)

STOCK MARKET TERMINOLOGY FOR BEGINNERS

1. Stock(s)

Stock is just a bundle of shares, nothing more, nothing less. These are the certificates of ownership of the company.

These are first issued by the company.

The initial issuance is known as an IPO (Initial Public Offering). 

IPOs happen in the primary market. After the IPO, these are traded easily in the stock market.
The stock market is a secondary market. The primary market is where any security is formed and traded for the first time, and there is the involvement of the company.

Let’s discuss the 2 types of stocks:

Equity stocks

General public of the market get these stocks.

Preference stocks

Only the employees of the company get these stocks, and not the public.

2. Dividend

This is the money paid to the stock-holders on a regular basis (quarterly, semi-annually, and so on).

Preference share-holders are guaranteed a fixed dividend. Equity shareholders are not. This money is paid if and only the company has made profits wants to distribute it.

A company has NO OBLIGATION to pay the dividend to the equity shareholders. It may or may not. Totally up to the company. If it wants to re-invest the profit in the business, the equity stockholders do not have the right to demand the dividend.

One of the more commonly used stock market terms.

3. BSE 

Bombay Stock Exchange. It is one of the two major stock exchanges in India. Formed in 1875, it is Asia’s oldest stock exchange. (Stand up India!)

Its major index is BSE SENSEX. A common Indian stock market terminology.

4. NSE 

National Stock Exchange. It is one of the two major stock exchanges in India. Founded in 1992, the same year as SEBI. Its major index is Nifty 50. A common Indian stock market terminology.

5. Securities

Securities are financial instruments that are traded across all sorts of markets in order to raise funds. There are a lot of securities in the world.
Stocks are an example of security. Debentures and bonds and options and mutual funds and etc.

One of the most commonly used stock market terms.

Also Read: TOP 10 STOCK MARKET BOOKS FOR BEGINNERS

6. Capital 

Capital is the money invested by the owner in any business. It represents the total of assets owned by the person or organization that can be used for starting a new business and/or investing.

Stocks are used to expand the capital of any organization. There are two ways to raise capital – Debt and Equity. Equity is stocks that we discussed. Debt is the issuance of debentures and bonds.

Capital comprises debt and equity.

7. DEMAT Account 

It is an account used to hold all your securities in their electronic form.

8. Bull Market 

The bull market represents any market’s optimistic phase. In this phase, the market rises and a majority of companies do good. The Indian stock market terminology for bull is “Teji-waala”.

9. Bear Market 

The bear market represents any market’s pessimistic phase. In this phase, the market is in the fall and most of the companies are not doing so well. The Indian stock market terminology for bear is “Mandi-waala”.

Ideally, people should buy in the bear phase and sell in the bull phase.

(Only if it were that simple)

10. SEBI 

Securities and Exchange Board of India. Formed in 1992, on the 12^th of April. (Same as NSE). Regulates and supervises the happenings of Indian financial markets. A common Indian stock market terminology.

11. Volatility 

It is the measurement of the variations of the price of a stock.

A commonly used stock market terminology for beginners.

12. Blue-Chip Stocks 

A big and well-reputed company is known as a blue-chip stock. These companies are well-established for a long amount of time.
These companies are known for their goodwill, the regular payments of dividends, and have a stable and dependable earning. Some examples are ITC Ltd, Reliance Industries, TCS Ltd, etc.

This is probably one of the most used Indian stock market terminologies.

13. Agents 

These are the people that represent their clients. They trade securities on behalf of their clients but do not own those securities. They earn in commissions.

14. Brokers 

These people generally work for a brokerage firm and trade shares on behalf of their clients. They also advise their clients on which share to buy or which to sell. They too earn in commissions.

Every broker is an agent, but every agent is not a broker.

15. Commission

Fees charged by the brokers and agents in exchange for their services.
A common stock market terminology for beginners.

16. Assets 

These are the things owned by a business or a person, that provide some financial benefit to the owner.

17. Liabilities 

These are the things that a person or business owes to someone. These need to be paid off.

18. Bonds and Debentures

Securities issued by the company in order to raise money through debt. These represent a liability towards a company. Company’s assets back the bonds. Debentures are not.

19. Spot Market 

In this market, securities and commodities are traded for immediate delivery. Hence, the name “Spot”, as in on the spot. This is a common stock market terminology for beginners.

20. Strike Price 

The price is pre-fixed and at which the owner can sell or buy it. Associated with options.

21. Underlying Price 

The current price (market price) of the underlying asset of a derivative.

22. At the money 

When strike price = underlying value of the asset.

23. Offer price 

Lowest price an owner offers to sell his/her stock. One of the easiest stock market terms used.

24. Bid price 

The highest price a buyer wants to pay for a stock. Again, one of the easiest stock market terms used.

25. Spread 

Bid price – Offer price = Spread.

26. Volume 

The number of times securities are traded in the market during a period of time, generally in a day.

For e.g. – If the total transactions in the stock market for a day are 5, the volume would be 5.

27. Beta

The correlation between a stock and the market. This comes in handy.

Correlation always plays an important role in stock markets. This might be a new stock market terminology for beginners.

28. Board Lot 

A standardized number of shares for trading at a time. This helps in smooth transactions. Instead of trading a single share every time, board lots are used. 50,100, and so on, depending on the price per share.

29. Book 

An electronic account for keeping and managing the trades of stocks.

30. Commodity 

An economic good, or a resource that can be used to yield further products. These are traded in the commodity markets. These can be agricultural materials or valuable metals and so on.

E.g. – Silver, gold, crude oil, wheat, copper, etc.

31. Business day 

Weekdays, excluding national holidays. The easiest stock market term.

32. Call 

The call is a term used to denote an owner’s right to buy a particular stock. Generally associated with options and other derivatives.

P.S. This only denotes the owner’s right, and it is not an obligation.

33. Put 

Put is a term used to denote an owner’s right to sell a particular stock. Generally associated with options and other derivatives.

Pssst, this only denotes the owner’s right, and it is not an obligation.

34. Derivatives 

This form of security is not easy to understand at the first glance, but that is what I am here for, right?
These securities derive their value from an underlying instrument.
(Can be a stock, a commodity, and so on)

There are 4 major types of derivatives:

1) Forwards
2) Futures
3) Options
4) Swaps

Easily one of the most used stock market terms.

35. Forwards 

These derivatives are highly customizable derivatives drawn between two parties, for the trade of a security on a future date at the strike price. Considered Over-the-Counter instruments, and are not centralized.

Generally used to hedge against the uncertainty of price of commodities.

Not traded through centralized exchanges.

36. Futures 

Think of forwards and add standardized and legal, then add an obligation to trade at the strike price. You got futures.
These are highly standardized derivatives, obligating the parties involved to transact at the pre-determined price at a future date and price.

37. Options 

Most commonly used derivative.

An option is a derivative that gives the buyer a right to call or put the underlying security at the pre-fixed amount. They do not have an obligation to do so.

38. Swaps 

It is a derivative, where-in two parties swap their interest rates or liabilities between two different financial instruments. These are Over-the-Counter securities. The most common swap is an interest rate swap.

39. Over-the-Counter 

The securities which come under OTC are not standardized and do not meet the requirements of the standard market exchanges and are thus traded via a broker-dealer network and not a proper exchange.

40. Opening price 

The first price of the day at which a stock is traded. An easy stock market terminology for beginners.

41. Closing price 

The last price of the day at which a stock is traded. Again, an easy stock market terminology for beginners.

42. High 

This value represents the highest value of a particular stock on that day.

43. All-time high

This represents the highest price of a particular stock in its lifetime.

44. 52-week high

This represents the highest price of a particular stock in 52 weeks. In the stock market, a year is calculated in weeks, i.e. 52 weeks in a year.

45. Low

This value represents the lowest price of a particular stock on that day.

46. All-time low 

This value represents the lowest price of a particular stock in its lifetime.

47. 52-week low 

This value represents the lowest price of a particular stock in 52 weeks.

48. Face value 

It is the original value as listed on the certificate or at which the stock was issued. One of the most basic stock market terms

49. Market value 

It is the value of a security as defined by its demand in the market. In simple terms, its current price in the market. One of the most basic stock market terms.

50. Diversification 

It is a method to reduce any risk while investing. Under this method, a person selects stocks that are from a wide range of industries, sectors, and even different markets. It is one of the most basic methods of hedging your portfolio.

Also, one of the most basic stock market terms.

51. Portfolio 

The total of all stocks and other securities that a person hold is known as a portfolio. Relatively easier of the stock market terms.

52. Hedging 

A risk management strategy used for reducing the risks associated with abnormal price aberrations in the future. Maybe a new stock market terminology for beginners.

53. Risk 

Here I am babbling about how to minimize risk when I didn’t even explain what risk is. My bad.Risk is the potential loss or a threat. In short, it is uncertainty. Every action has a certain amount of risk associated with it. An easy stock market terminology for beginners.

54. Index 

What is an Index? The first page of a notebook! (Sorry about that)

Think of an index as an average of the entire market. Index is a representative of the select stocks in a stock market.

If an index is doing good, it means that the market, in general, is doing good. If an index is not doing good, it means that the market, in general, is not doing good. It is used as a benchmark to compare any company’s performance.

E.g. – Nifty 50 – This is one of two major Indian stock market indices that represents the weighted average of 50 of the largest Indian companies listed on the NSE.

55. Listed stocks 

The stocks that are listed and can be traded within the stock market.

Again, one of the easiest stock market terminology for beginners.

56. Market capitalization 

The total of the company’s size in terms of its wealth in shares. Total outstanding shares multiplied by their market price. This might be a new stock market terminology for beginners.

57. Mutual fund 

It is security wherein professionals manage a pool of money pitched in by customers, and invest it in financial securities. They usually invest the money in government securities like G-sec. Less risky than direct investments due to large capital and investment is comparatively less risky instruments.

58. Odd lot 

Remember we saw board lot? Well, this is its abnormal brother.

An odd lot refers to a number of shares that are not equal to the board lot.

E.g. – If the board lot is 200, the odd lot would be 196 or 203.

(These are not easily accepted by any trader in the market)

This might be a new stock market terminology for beginners.

59. Price to Earnings ratio (P/E ratio) 

This is the ratio used to determine the price one needs to pay over a dollar earned.

E.g. – If the profit of a company is $500,000, whereas the total price of the company is $2M, its P/E would be $4. It simply means – For every dollar made, the company paid $4 in return.

60. Return on assets ratio (ROA)

This is the ratio used to determine the profitability of an asset after the company has acquired it.

E.g. – If the company made a profit of 100,000$, through the asset it just bought for 500,000$, its ROA would be 20%. It means – The profitability of the asset is 20%.

61. Trading session 

The daily fixed trading time, within which securities are traded. For Indian stock exchanges, it is 9:15 A.M – 3:30 P.M.

62. Yield 

Current price of the share divided by the annual dividend paid by the company. This might be a new stock market terminology for beginners

63. Right issue 

A rights issue is an additional issuance of new shares to existing shareholders.

This happens when the company goes for a new IPO and offers it first to its existing shareholders. This may be a new stock market terminology for beginners.

64. Stock split 

Splitting a stock further into 2 or more stocks. It is usually done to increase the number of shares in the market. The usual ratio is 2:1 or 3:1, which is one share split into 2 or 3 shares. This might be a new stock market terminology for beginners.

65. Tax 

It is a compulsory charge paid to the government, which the government implements to carry out various duties.

There are a variety of taxes that govt charges – Income tax, GST, service tax, etc. But there are 2 major tax types –

Direct and Indirect.

An easy stock market terminology for beginners.

66. Direct Tax 

Payment of tax directly to the government or the entity that imposed it.

67. Indirect Tax 

Payment of tax to an intermediary who in turn pays it to the govt.

68. Convertible Securities

These securities can be converted to other securities. The most common is convertible debentures, which can be converted into equity shares.

A new stock market terminology for beginners.

69. Defensive stocks 

These types of stocks are steady providers of dividends, regardless of what is happening in the market.

If the market is bullish, congratulations! You will get that dividend.

If the market is bearish, congratulations! You will get that dividend.

Maybe a new stock market terminology for beginners.

70. Liquidity

This term refers to how easily can an asset be converted into cash. Highly liquid assets can be easily converted into cash, whereas assets with low liquidity cannot be converted into cash that easily. One of the commonly used common stock market terms.

71. Basis point 

1/100^th of a percentage. 

E.g. – 1% = 100 basis points. So, if 1% were to change to 1.5%, it would be a difference of 50 basis points.

A new stock market terminology for beginners.

72. Long-term Capital gains

Gains made when one sells a long-term asset. (More than 1 year)
A new stock market terminology for beginners.

73. Short-term Capital gains 

Gains made when one sells a short-term asset. (Less than 1 year)

I will not mention that it might be a new stock market terminology for beginners. Oops.

74. Day trade 

Trade with an expiry period of one day. If not dealt with in that trading session, it will expire overnight.

75. Market manipulations 

Illegal and unfair techniques used to manipulate the free-flowing market to one’s favor.

Most of the scams happen due to different types of market manipulations.

76. Net worth 

The total wealth of an individual, after subtracting his/her total liabilities from his/her total assets. This is one of the most common stock market terminologies for beginners.

Conclusion

These are more or less all the terms used in the stock market.

If you still have some doubts about the terms, listen to me and go take some awesome courses on stock market and who knows, maybe you’ll get to say –

Thank you for reading my article, I really appreciate it.