The stock market is used by specialists and equity analysts to explain the situation of the Indian stock markets. Understanding this terminology can help you understand stocks and other equity investments.
1 What is Stock Market?
The stock market is a venue where individuals purchase and sell equity shares of firms (buyers and sellers of stocks). Participants might include investors and traders looking for short-term or long-term returns. The majority of investors have a long-term perspective and profit from capital appreciation over time. Traders, on the other hand, seek rapid profits by focusing on modest price fluctuations in stock shares, which often last a few minutes or the entire trading session.
The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the key venues in India where most stock trading takes place. Buyers and sellers submit their orders through brokers who provide online trading services. The settlement cycle is structured in the T+2 format. Simply put, you have two days to complete the deal cycle from start to final settlement.
Placing the order is the initial stage in the trade life cycle. It is then followed by the matching and execution of the order. The deal would subsequently be cleared by the stock exchange’s clearing house. The final stage is a settlement, which comprises the payment in and payment out of monies and securities on the last day of the transaction cycle.
2 Why should you know about Stock Market terminology?
Stock market terminology refers to industry-specific jargon that is frequently employed in the stock markets. Even professionals and novices use this terminology to describe trading methods, indexes, stock market trends, and other stock market components. To make money in the stock markets as an equities lover, you must be well-versed in this terminology.
Furthermore, it will improve your grasp of the link between stock markets and economic events. The bull and bear markets are two of the most often used stock market phrases. A bull market exists when the stock market is rising and the economy is doing well. A bear market exists when the stock market endures lengthy periods of price falls. It is a condition in which the prices of securities decline by 20% from their recent highs.
3 Basic Stock Market Terms you should know
Whether you are a beginner or an experienced stock investor, understanding the fundamental concepts of the stock market is essential. As your stock market vocabulary expands, you will become not just a better investor, but also a successful trader. As an investor, you should be familiar with the following terms:
An agent is a stock brokerage business that buys and sells shares in the stock market on behalf of the investor.
It refers to the lowest price at which the equity share’s owner is ready to sell the share on the stock exchange.
In exchange for a commission, a person buys or sells investments/stocks on behalf of the investor/trader.
4 Bear Market
It refers to a time in which equities share prices continually decrease. It is often defined by a 20% drop in share prices from previous highs.
5 Bull Market
A bull market, which is the inverse of a bad market, is one in which stock values rise over time. A single stock or sector might be bullish one moment and bearish the next.
It analyzes the relationship between the price of a stock and the overall movement of the stock market. The market’s beta is believed to be one. A stock with a beta greater than one is riskier than the market. A beta smaller than one indicates that the stock is less risky than the market or that it will decline less than the market.
It is the greatest price that a stock consumer is willing to pay for a certain stock.
8 Blue Chip Stock
These are equity shares in well-established and financially stable firms. These often have a large market capitalization.
9 Board lot
Each exchange board establishes a standard trading unit based on the per-share price. The most common board lot sizes are 50, 100, 500, and 1000 units.
A bond is a fixed-income investment that is sold to investors by the government or a firm. It denotes the amount that an investor owes to the bond’s issuer for a certain period at a variable or fixed interest rate known as the coupon rate.
It refers to an electronic record that is used to organize all pending purchase and sell orders for certain stocks.
12 Call Option
The option buyer obtains the right, but not the duty, to acquire the underlying security at a stated price and time.
13 Close Price
It is the ultimate price at which a company’s equity shares are sold or traded on a certain trading day.
14 Convertible Securities
It is a security that, like preferred stocks, bonds, and debentures, is issued by an issuer and can be exchanged into other securities of that issuer.
It is a type of fixed-income instrument that is not backed by the issuer’s actual assets or collateral.
16 Defensive Stock
Regardless of the state of the stock market, these stocks provide regular earnings and dependable dividends. Popular defensive industries include FMCG, pharmaceuticals, and information technology.
A delta is the ratio of change in a derivative’s price in reaction to a change in the underlying asset’s price. A bigger delta indicates more susceptibility to underlying asset price fluctuations.
18 Face value
It refers to the amount of money or cash value that the holder of security will receive from the issuer when the security matures on a specified date.
19 Moving Average
It refers to the average price per unit of an equity share during a specified period. The 50- and 200-day moving averages are two prominent periods for studying a stock’s moving average.
20 One-sided Market
It refers to a scenario in which a market only has possible sellers/buyers rather than both present at the same time. Market makers simply display the bid or offer price, suggesting that the market is moving in one way.
It is the gap between the bid and asks prices of an equity share. You may think of it as the difference between the amount you want to acquire and the amount you want to sell a stock.
It refers to the price fluctuations of an equity share. During trading sessions, highly volatile equities have extreme ups and downs. These are high-risk trades that may result in massive rewards for a smart trader. However, stocks may plummet in a matter of seconds, and high volatility can result in significant losses.
It displays the average number of stocks exchanged within a specific period, which is generally the daily trading volume.
24 Dividend Yield
It displays how much a company or organization pays out in dividends each year about its stock price.
25 How to Invest in Equities?
If you know how to identify the correct stocks and understand the stock market, you can invest in them. Otherwise, you should consider investing in equity funds. Consider investing in direct funds, which allow you to invest directly with the AMC. It saves you money on the cost ratio since the AMC does not pay commission to mutual fund distributors.