Stock Market Terms You Must Know

Stocks are an important investment vehicle and a key component of personal finance. If you are a beginner in stock markets or just looking to refresh your knowledge, this post is for you. I’ve listed down some key stock market terms that I believe everyone must know and understand, along with a brief description.

Hope this would be useful for you. Let’s get rolling!

Bear Market

A condition where market indices are constantly falling and investors have an overall negative outlook on the market.

Beta

Beta represents the relationship between price movement of a stock with respect to overall market. The beta of market is assumed to be 1, hence a beta greater than 1 means that the stock is more volatile or riskier than market and vice versa.

Bluechip Stocks

The shares of established and financially stable companies with a huge market capitalization are termed as bluechip stocks.

Bull Market

Opposite condition to bear market, where market indices are constantly rising and investors have an overall positive outlook on the market.

Delivery

When a share is bought and hold for a period more than 1 day, it may be a week, an year or any longer period, it’s referred to as delivery.

Demat Account

It stands for ‘Dematerialised account’. A demat account is used to keep shares(or other securities) just as a bank account is used to keep money.

Dividend

Corporates may choose to distribute a part of their profit with their shareholders. This profit is distributed is the form of dividends.

Index

There are hundreds of companies listed on the stock market and investors would always want to understand the overall trend of market whether it is positive or negative. An index is sample of stocks which represent the whole market and can be used as an overall performance tracker.

There are two primary indices in India; Sensex, consisting of 30 large companies from Bombay Stock Exchange and Nifty, consisting of 50 large companies from National Stock Exchange.

Intraday

When a share is bought and sold on same day, it is referred to as intraday trading. The purpose of intraday is not investing, it’s just capitalising on stock price movements and make profits.

IPO

IPO stands for Initial Public Offering. When a privately held company wants to raise funds from public and get listed in stock market, it releases its IPO.

Liquidity

Liquidity is a measure of how easily and quickly a share can be bought or sold without affecting its price. A highly liquid share can be bought and sold very easily while a less liquid share might be difficult to trade.

Market Capitalization

It represents the overall value of all the shares of a company in stock market, i.e. price per share multiplied by the total number of available shares. It is used to classify or segregate companies as small cap, mid cap or large cap based on their market capitalization.

Portfolio

Portfolio is the combination of all stocks held by an investor.

Sector

A group of stocks that belong to same industry, for example HDFC or SBI would be stocks from banking sector, Airtel and Idea would be stocks from telecom sector and so on.

Share

A share is the part ownership of a company provided to an investor in exchange of funds raised as an investment. It provides the investor an equity or ownership in the issuing company, its assets and profits. As the company grows profitable, the prices of shares increase, and the investors accumulate gains.

Stock

A share is the smallest unit representing a company’s capital. A stock is collection of fully paid up shares of a member. Simply put, stock is collection of shares.

Stock Exchange

Stock exchange is a market which connects stock buyers and sellers and facilitates the transactions. The two stock exchanges in India are BSE-Bombay Stock Exchange and NSE-National Stock Exchange.

Trading Account

A trading account is a one stop window to buy or sell a share in any stock market.

Volume

Volume is the total number of shares of a stock being bought and sold at a time. High volume means there are large number of buyers and sellers or the stock is actively traded. This aids to an easier order execution.

Volatility

Volatility represents how frequently the price of a share moves up or down. More volatility means more risk as the price can change very quickly.

Your feedback, comments and questions are most welcome!