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 8th 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.
Easy, to raise money for their capital requirements.
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?
(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
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:
General public of the market get these stocks.
Only the employees of the company get these stocks, and not the public.
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.
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.
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.
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
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)
Securities and Exchange Board of India. Formed in 1992, on the 12th of April. (Same as NSE). Regulates and supervises the happenings of Indian financial markets. A common Indian stock market terminology.
It is the measurement of the variations of the price of a stock.
More volatility = lesser stable = less preferred.
Less volatility = more stable = more preferred.
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.
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.
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.
Fees charged by the brokers and agents in exchange for their services.
A common stock market terminology for beginners.
These are the things owned by a business or a person, that provide some financial benefit to the owner.
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.
Bid price – Offer price = Spread.
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.
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.
An electronic account for keeping and managing the trades of stocks.
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.
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.
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.
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:
Easily one of the most used stock market terms.
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.
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.
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.
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.
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.
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.
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.
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.
The total of all stocks and other securities that a person hold is known as a portfolio. Relatively easier of the stock market terms.
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.
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.
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.
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.
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.
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
1/100th 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.
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.