Beginners Guide - Stock Market Terms in NEW TO TRADING & INVESTMENTS? - Someone new to investing/market, will find so many terms used and may not know/understand all of them. Hope this article ...
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Stock Market Terms

  1. Stock Market Terms

    Someone new to investing/market, will find so many terms used and may not know/understand all of them. Hope this article serves as a glossary for the stock market terms.

    1. Share market: Called also as Stock Market. Right term to use is “Securities Market” as it deals with transactions not just in stocks, but also in all types of “Securities” such as derivative products of stocks, indices, currencies etc. It is the place where securities are publicly issued and traded.

    2. Stock exchange: This is a place where once can transact (buy/sell) the listed securities. All stock exchanges in India are now digital, and you can access them online through a brokerage firm. NSE, BSE, MCX, NCDEX are some famous exchanges in India.

    3. BSE: BSE is the shorter form of Bombay Stock Exchange. BSE is the oldest and the largest securities market in India and has been operational since 1875. Currently there 6000 stocks or shares which are traded on BSE.

    4. NSE: NSE is the shorter form of National Stock Exchange, which is the most popular stock exchange in India as well as in the world. NSE was established in 1992 in Mumbai and it’s the one of the most complicated exchanges in the world and ranked as the 4th best stock exchange in the world by trading in equity segment in 2015

    5. Index: A benchmark that is used by investors and portfolio managers to measure market performance. Nifty and Sensex are such benchmarks of NSE and BSE respectively. If your portfolio returned 10%, that may sound really good. But if the Sensex returned 12% during the same period – your portfolio did not perform very well.

    6. Sensex: The BSE SENSEX is a free-float market-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange

    7. Nifty: The NIFTY 50 is a benchmark Indian stock market index that represents the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange. It is one of the two main stock indices used in India, the other being the BSE SENSEX

    8. Over-the-counter: If you trade a security that is not listed in a stock exchange, you are making an over-the-counter trade. Here price is negotiated directly between the parties and settled among them directly.

    9. Broker: A broker is a person/firm who buys and sells investment on your behalf at exchanges and, in turn, takes a certain amount of money called commission or brokerage fee.

    10. Depository: A depository is an entity, which helps an investor to buy or sell securities such as stocks and bonds in a paper-less manner. Securities in depository accounts are similar to funds in bank accounts. NSDL and CDSL are the two depositories available in India. When you open a trading and demat account with a broker, your demat account will be opened either with NSDL or CDSL based on your broker’s business tie up.

    11. Depository Participants: In India, a Depository Participant is described as an Agent of the depository. They are the intermediaries between the depository and the investors. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act. Small brokers won’t have the infrastructure to act as DP and so mostly will tie up with 3rd party DP service providers.

    12. Demat Account: Demat or Demat Account is the term used to denote a repository where all information related to stock holding of any individual is held digitally. There are mainly Depository in India, NSDL and CDSL connected through approved financial institutions like banks and stock brokers in India.

    13. Clearing Corporation: A clearing corporation (also called as clearing house) is an organisation/entity affiliated with a stock exchange whose primary objective is to oversee the handling of confirmation, settlement, and delivery of transactions.

    14. Stock: Stock is a general term used to refer to a certificate indicating ownership in a company.

    15. Share: A share is a stock certificate of a particular company. Used interchangeably with stock.

    16. Bull market: When stock prices in a market are generally rising, it is called a bull market.

    17. Bear market: The exact opposite of a bull market is a bear market – when the stock prices in the market are generally falling, it is called a bear market. Bull and Bear Market are named on how these two animals attack.

    18. Bid: Your bid is the amount that you are willing to pay for a share.

    19. Ask: Ask is the price at which you are willing to sell a share.

    20. Order: It is a show of intent to buy or sell shares, either at best available offer or bid (Market Order), OR in a given price (Limit Order).

    21. Market order: An order to sell/buy shares at the market price is called a market order.

    22. Limit order: An order to sell shares above a set price or buy shares below a set price is called a limit order. People use limit orders to avoid slippages.

    23. Bid-ask spread: This is the difference between the amount people are willing to spend to buy a share and the amount at which the shareholders are willing to sell a share. A trade can only happen when this spread is resolved. That is, if the lowest price at which a share for Company A is being sold is Rs. 40, and the highest price someone is willing to pay for such a share is Rs. 38 – no trade can happen. The trade can only happen when the bid and ask prices match. This difference between bid and ask is called as “Spread” which traders would prefer to keep it as low as possible, mainly scalpers.

    24. Going Long: Betting on the price of a stock that will increase so that you can buy at a low price and sell at a high price.

    25. Going Short: Speculating on the price of a stock that will decrease so that you can sell at high price and buy it back at a low price to make a profit.

    26. Day order: An order that is good only till the end of the trading day is called a "day order". If the order does not get executed by the time the market closes, it would be cancelled.

    27. IOC order – Immediate Or Cancel: A type of order which gets immediately cancelled if it not filled at exchange (most people don’t use this)

    28. Liquidity: Liquidity refers to how easily a stock can be sold off. A share that can be sold off quickly i.e. has high trade volumes is said to be highly liquid. Bid-Ask Spread will be less in liquid stocks.

    29. Trading volume: The number of shares being traded on a given day is called trading volumes.

    30. IPO/Initial Public Offering: The first time a company offers its share for trading on a stock exchange. Typically, you buy shares on exchanges from the previous owner of the share and not the company directly. In case of an IPO, you get to buy the shares directly from the company. Companies sell shares to raise funds for growth/pay off debt/exit opportunity for early stage investors.

    31. Market capitalisation: Market capitalisation is simply the value of the company as per the stock market. That is, the current value of all its shares put together. (Number of shares multiplied by current market price).

    32. Mutual Funds: A mutual fund is a pool of money managed by a professional Fund Manager. AMC, Asset Management Company, floats new fund with an investment objective like Bluechip Fund and pools money from various investors and invests the same in equities, bonds, money market instruments and/or other securities as per the fund objective.

    33. Exchange-Traded Funds: These are mutual funds that you can trade like shares on the stock exchange. They usually track an index.

    34. Portfolio: Portfolio is simply the collection of all the investments an investor has made. It can be stocks, bonds, derivatives, gold, property, cash etc.

    35. Long Term Investing: Those who want to create wealth, look for investing their capital in various asset classes which they believe will appreciate good enough in long run. People buy stocks of companies that are well managed and financially sound. Most go by SIP into mutual funds or invests into index funds/ETF.

  2. 36. Dividends: Dividend is a part of the profit distributed by a corporation among its shareholders. When a company earns profit during a financial year, a part of that profit is usually distributed as dividends among its shareholders.

    37. Traders: People who speculate on the price movements of stocks looking to make a quick profit. Traders are the one who look for regular returns from market, like another source of income where as investors don’t seek regular returns, but wait for capital appreciation to realise the power of compounding.

    38. Intra-day trading: Intraday trading is about buying and selling stocks on the same day so that all positions are closed before trading hours are over on that day. Brokers offer leverage for such trading to encourage more people to trade so more brokerage income for them.

    39. Delivery: CNC: Cash and Carry: When you buy a stock with intent of not selling on same day, it is called taking Delivery. Shares will be credited to demat account on T+2 days

    40. BTST: Buy Today Sell Tomorrow – Some traders would want to buy a stock just for one day, mostly during results or any news, to sell it on next day.

    41. Scalping: This is a type of trading where one enters and exits trades in matter of few minutes, at times within a minute. They look for small movement in price but profit by trading large quantities. One need to be really fast to be a good scalper.

    42. Swing Trading: This is where one takes a position for a short duration, usually few days to few weeks. Traders look for either trend reversal or a breakout to take position.

    43. Trading Volume: Trading volume means the number of shares that are traded on a particular day.

    44. Market Capitalisation: It simply means the value of a company according to the stock market. That is the current value of all the shares of a company put together.

    45. Volatility: Volatility refers to the degree of or the extent in fluctuation in the prices of the stock. Highly volatile stock witness abnormal highs and lows during the trading session, while low volatile stocks experience ups and downs to a lesser degree

    46. Annual Report: An annual report is a yearly report that every company prepares to impress the shareholders of their company. The annual report consists of lots of information about a company, from cash flow to management strategy. Several people read the annual report to look at the company’s solvency and judge their financial position.

    47. Arbitrage: Arbitrage is the process of simultaneous buying and selling of an asset from different platforms, exchanges or locations to cash in on the price difference (usually small in percentage terms). Some people use cash to futures price difference, buying in cash segment and selling the futures.

    48. Futures: It is a binding contract between buyers and sellers, where the buyer agrees to buy a fixed number of shares from the sellers, at a specified time in the future and at a pre-determined price. The futures contract derive their value directly from the value of the underlying asset. Traders use futures mainly for the leverage it offers and institutions to hedge their cash portfolio. Each stock has exchange defined lot size and one can trade in multiples of lots.

    49. Options: It is also a derivative product like Futures. An option contract is a financial contract which gives an investor a right to either buy sell an asset at a pre-determined price by a specific date.

    50. Call Option: The buyer of the call option earns a right (it is not an obligation) to exercise his option to buy a particular asset, stock as example, from the call option seller for a stipulated period of time.

    51. Put Option: The buyer of the put option earns a right (it is not an obligation) to exercise his option to sell a particular asset, stock as example, to the put option seller for a stipulated period of time.

    52. Open Interest: It is the total number of outstanding contracts that are held by market participants. It is used by Futures and Options traders to compare it with Price to check the strength of the movement. Some traders use open interest with changes in Volatility to understand the trend (bullish or bearish).

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