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27 Key terms in share market that you should know

#27 Key terms in share market that you should know

#27 Key terms in share market that you should know:

There are a number of terminologies that a stock market investor/trader should know. This basic domain knowledge is really important if you want to enter and succeed in the share market.

Here is a guide for the beginners to help them understand the key terms in share market.

#27 Key terms in share market that you should know:

Intraday: When you buy and sell the share on the same day, then it is called intraday trading. Here the shares are not purchased for investing, but to get profits by harnessing the movement in the market.

Delivery: When you buy a share and hold it for more than one day, then it is called delivery. It doesn’t matter whether you sell it tomorrow, after 1 week, 6 months or 5 years. If you hold the stock for more than one day, then it is called delivery.

Bull market: This is a term used to describe the scenario of the market. A bull market is when the share prices are rising and the public is optimistic that the share price will continue to rise.

Bear Market: When the share prices are falling and the public is pessimistic about the stock market, then it’s a bear market. The public is fearful and thinks that the market will continue to fall and hence, selling increases in this market.

Also read: What is Bull and Bear market? Stock Market Basics

bull vs bear - key terms in share market

Image source: Daily reckoning

Bid: The bid price represents the maximum price that the buyer/buyers are willing to give to buy a share.

Ask: This is the minimum price that the seller/sellers are willing to receive to sell their shares.

Bid-Ask spread: This is the difference between the ‘bid’ and ‘ask’ price of a share. Basically, its the difference between the highest price that the buyers are willing to buy a share and the lowest price that the sellers are willing to sell their shares.

Limit Order: Limit order means to buy/sell a share with a limit price. If you want to buy/sell a share at a given price, then you place a limit order. For example, if the current market price of ‘Tata motors’ is Rs 425, however you want to buy it at Rs 420, then you need to place a limit order. When the market price of Tata motors falls to Rs 420, then the order is executed.

Market order: When you want to buy/sell a share at the current market price, then you need to place a market order. For example, if the market price of ‘Tata Motors’ is Rs 425 and you are ready to buy the share at the same price, then you place a market order. Here, the order is executed instantaneously.

Good till cancellation (GTC) order: This order can be placed when an investor is willing to buy/sell the shares at a specific price and the order remains active till it is executed or canceled.

Day order: This order can be placed when an investor is willing to buy/sell shares on a particular day and the order gets automatically canceled if not fulfilled on that day.

If you are new to share market and want to learn how to pick winning stocks, then here is an amazing crash course that I highly recommend you to check out.

Trading volume: It is the total number of shares being traded at a particular period of time.

Volatility: It means how fast a stock price moves up or down. A lower volatility means that the share’s value does not fluctuate dramatically.

Liquidity: Liquidity means how easily you can buy/sell a share without affecting the share price. A highly liquid share means that it can easily be bought or sold. A low liquid stock means that the buyers/sellers are hard to find.

Short selling: It is a practice where the trader sells share first (which he doesn’t even own at that time) and hope that the price of that share starts falling. He will make a profit by buying back those shares at the lower price. Overall, both selling and buying are done here, however, it’s sequence is opposite to the regular transactions to get the profit of the falling share prices. 

Going long: This is buying the shares in expectations that the share price is going to increase. When a trader say I am “Going long…” or “Go long”, it indicates his interest in buying a particular share.

Average down: This is an approach that investors use to buy more shares when the share price starts falling. This results in an overall lower average price for that share. For example, you bought a stock at Rs 100. Then the stock price starts falling. You bought the stock again at Rs 80 and Rs 60. Hence, the average price of your investment will be lower i.e. Rs 80. This is the approach used in averaging down.

Market capitalization: It refers to the total rupee value of the company’s share. It is calculated by multiplying the total number of shares by its present market share price. It is used to define large cap, mid cap or small cap companies based on their market capitalization.

Also read: Basics of Market Capitalization in Indian Stock Market.

Public float (free float): Public float or free float represents the portion of shares of a company that is in the hands of public investors.

IPO: When a privately listed company offers its sharers first time to the public to enter in the share market, then it is called initial public offering.

Blue chip stocks: These are the stocks of those reputed companies who are in the market for a very long time, financially strong and have a good track record of consistent growth and returns in the past many years. Their stocks has low risk compared to mid cap and small cap stocks.

Broker: A stockbroker is an individual/organization who is a registered member of the stock exchange and are given license to participate in the securities market in place of its clients. Stockbrokers can directly buy & sell stocks in the share market on behalf of their clients and charge a commission for this service.

Portfolio: A stock portfolio is grouping all the stocks that you are holding. A portfolio shows the different stocks and their quantities that you are holding. It’s important to build a good portfolio to maintain risk-reward in the stock market.

Also read: How to create your Stock Portfolio?

Stock Exchange: Just like a vegetable market, exchanges act as a market where the stock buyers connect with stock sellers. There are two big stock exchanges in India- Bombay stock exchange (BSE) and National stock exchange (NSE).

stock-market-buy-sell

Image source: Cartoon Stock Market

Dividend: Whenever a company (whose shares you are holding) is in profit, the company can either reinvest the profit or distribute the amount among its shareholders. This share of the profit that you get from the company is called dividend.

Companies may or may not give dividends to its shareholders depending on its needs. If it’s growing fast, it might re-invest the profit in its expansion. However, if it has enough cash, the company will distribute it among its shareholders.

Margin: Trading on margin means borrowing money from your stock brokers to purchase stock. It allows the traders to buy more stocks than you’d normally be able to.

Index: Since there are thousands of company listed on a stock exchange, hence it’s really hard to track every single stock to evaluate the market performance at a time. Therefore, a smaller sample is taken which is the representative of the whole market. This small sample is called Index and it helps in the measurement of the value of a section of the stock market. The index is computed from the prices of selected stocks.

Sensex is the index of BSE and consists of 30 large companies from BSE. Nifty is the index of NSE and consists of 50 large companies from NSE.

Also read: What is Nifty and Sensex? Stock Market Basics for Beginners

That’s all. Apart, there are thousands more terminologies involved in trading/investing. However, these are the key terms in share market that a beginner should know.

I hope this is helpful to the readers.

Please comment below if I missed any key term in share market that should be listed in this post.

Tags: key terms in share market, indian share market terminology, indian stock market terms and definitions, stock market terminology explained, words associated with stock exchange and their meanings, key terms in share market for beginners, trading terminology, must know terms in share, stock market terminology for beginners

Hi, I am Kritesh, an NSE Certified Equity Fundamental Analyst. I’m 23-year old and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting

How to Invest in Share Market? A Beginner’s guide

How to Invest in Share Market? A Beginner’s guide

How to invest in share market in India?

Hi Investors. Today we are going to discuss one of the most basic topics for a beginner- How to invest in share market?

I have been planning to write this post for a number of days as there are many people who are willing to invest, however, do not know how to invest in share market.

Please note that this post might be a little longer as I am trying to cover all the basics that a beginner should know before entering the stock investment world. Make sure that you read the article till the end, cause it will be definitely worthwhile reading it.

Pre-requisites:

For investing in Indian stock market, there are few pre-requisites that I would like to mention first. Here are the few things that you will need to invest in share market:

  1. Savings account
  2. Trading and demat account
  3. Computer/laptop/mobile
  4. Internet connection

(Thanks to Reliance Jio, everyone has 4G internet connection now.. 😀 )

For opening a demat account, the following documents are required:

  1. PAN Card
  2. Aadhar card (for address proof)
  3. Passport size photos
  4. Cancelled cheque

You can have your savings account in any private/public Indian bank.

Where to open your trading and demat account?
This will be discussed later in this post on the section ‘choose your stock broker’ (STEP 5).

Get your documents ready. If you do not have a PAN card, then apply as soon as possible (if you are 18 years old or above).

The basic advice that you need before starting investing:

When you are new to the stock market, you enter with lots of dreams and expectations. You might be planning to invest your savings and make lakhs in return.

Although there are hundreds of examples of people who had created huge wealth from the stock market, however, there are also thousands who didn’t.

Here are few cautionary points for people who are just entering the world of investing.

Pay down your debts first:

If you have any kind of debts like education loan, credit card dues, car loan debts etc, then pay them first. There is no point of wasting your energy to give all the returns you made from the market as interests of your debts. Pay down your debts before entering the market.

Invest only your additional/ surplus fund:

Stop right there if you are planning to invest your next semester tuition fee, next month flat rent, savings for your daughter’s marriage which is going to happen next year or any similar reasons.

Only invest the amount that won’t affect your daily life. In addition, investing in debts/loans is really a bad idea, especially when you are new and learning how to invest in share market.

Also read: #9 Reasons Why Most Indians do not Invest in stocks.

Keep some cash in hand:

The cash in hand doesn’t just servers as your emergency fund. It also serves as your key to freedom. You can take big steps like changing your little flat, or quit your annoying job or simply shifting to a new city, only when you have cash in hand.

Do not get trapped by investing all your money and later losing your freedom. Do not sacrifice your personal freedom in the name of financial freedom.

Now that you have understood the pre-requisites and the basics, here are the 6 steps to learn how to invest in share market on your own. Do follow the step sequences for an easy approach to enter the stock market world.

How to invest in share market?

Step 1: Define your investment goals:

investment goal

It’s important to start with defining your investment goals. Start with end goals in mind. Know what you want.

The time frame for different investment goals will be different. Your goal can be anything like buying a new house, new car, funding your higher education, marriage, retirement etc.

If you are investing for your retirement, then you have a bigger time frame compared to if you are investing for your higher education. When you know your goals, you can decide how much you want and for how long you have to remain invested.

Also read: What kind of Investor you are? Find out here.

Step 2: Create a plan/strategy

Now that you know your goals, you need to define your strategies. You might need to define whether you want to invest in the lump sum (a large amount at a time) or by SIP (systematic investment plan).

If you are planning for SIP, define how much you want to invest monthly.

Related post: SIP or Lump sum – Which one is better?

Step 3: Read some investing books.

There are a number of decent books on stock market investing that you can read to brush up the basics. Few good books that I will suggest the beginners should read are:

Besides, there are a couple of more books that you can read to build good basics of the stock market. You can find the list of must-read books for Indian stock investors here.

Also read: 10 Must Read Books For Stock Market Investors.

Step 4: Choose your stock broker

Deciding an online broker is one of the biggest steps that you need to take. There are two types of stock brokers in India:

  1. Full-service brokers
  2. Discount brokers

• Full-Service Brokers (Traditional Brokers)

They are traditional brokers who provide trading, research, and advisory facility for stocks, commodities, and currency. These brokers charge commissions on every trade their clients execute. They also facilitate investing in Forex, Mutual Funds, IPOs, FDs, Bonds, and Insurance.

Few examples of full-time brokers are ICICIDirect, Kotak Security, HDFC Sec, Sharekhan, Motilal Oswal etc

• Discount Brokers (Budget Brokers)

Discount brokers just provide the trading facility for their clients. They do not offer advisory and hence, suits for a ‘do-it-yourself’ type of clients. They offer low brokerage, high speed and a decent platform for trading in stocks, commodities and currency derivatives.

Few examples of discount brokers are Zerodha, ProStocks, RKSV, Trade Smart Online, SAS online etc.

Read more here: Full service brokers vs discount brokers: Which one to choose?

I will highly recommend you to choose discount brokers (like Zerodha) as it will save you a lot of brokerage charges.

I initially started with ICICI direct (which is a full-service broker), but soon realize that it was too expensive when compared to discount brokers. It doesn’t make sense to pay extra brokerage charges even if you get the similar benefits.

Related Post: Different Charges on Share Trading Explained- Brokerage, STT & More

Zerodha (discount broker) charges brokerage of 0.01% or Rs 20 (whichever is lower) per executed order on Intraday, irrespective of a number of shares or their prices. For delivery, there is zero brokerage charge in Zerodha.

This is way cheaper compared than ICICI direct (full-service broker) which asks a brokerage of 0.55% on each transaction. If you buy stocks for Rs 50,000 in ICICI direct, then you have to pay a brokerage of Rs 275 (for delivery trading).

Learn what is Intraday and delivery here.

Further, as this amount is charged on both sides of the transaction (buying & selling), hence you have to pay a total of Rs 550 for the complete transactions in ICICI direct (way too expensive than Zerodha).

In short, if you are planning to open a new trading account, I would recommend opening accounts in discount broker such as Zerodha so that you can save lots of brokerages.

Related Posts:

Step 5: Start researching common stocks and invest.

Start noticing the companies around you. If you like the product or services of any company, dig deeper to find out more about its parent company, like whether it is listed on the stock exchange or not, what is its current share price, etc.

Most of the products or services that you use in day to day life — From soap, shampoo, cigarettes, bank, petrol pump, SIM card or even your inner wears, there is a company behind every one. Start researching about them.

For example- if you’ve been using HDFC debit/credit card for a long time and satisfied with the experience, then investigate further about HDFC Bank. The information of all the listed companies in India are publicly available. Just a simple google search of ‘HDFC share price’ will give you the following pieces of information.

Similarly, if your neighbor bought a new Baleno car lately, they try to find out more about the parent company, i.e. Maruti Suzuki. What other products it offers and how is company performing recently- like how are its sales, profits, etc.

You do not need to start investing in stocks with hidden gems. Start with the popular large-cap companies. And once you are comfortable in the market, invest in mid and small caps.

Step 6: Select a platform to track your performance

You can simply use an excel sheet to track the stocks.

Make an excel sheet with three tables containing:

  1. The stocks that you are interested in and need to study/investigate,
  2. Those stocks that you have already studied and found decent,
  3. Miscellaneous stock- for the other stocks that you want to track.

This way, you can easily follow the stocks.

Further, there are a number of financial websites and mobile apps that you can use to keep track of the stocks.

Related post: 7 Best Stock Market Apps that Makes Stock Research 10x Easier.

Step 7: Have an exit plan

Its always good to have an exit plan. There are two ways to exit a stock. Either by booking profit or by booking loss.

If your investment goals are met, then you can exit the stocks happily. Further, if the stock has fallen under your risk appetite level, then again exit the stock. Also, keep in mind the time frame till which you want to remain investing before exiting.

It’s really important that you know how to take out your money.

Also read: What are the capital gain taxes on share in India?

There were the 6 steps that will help you learn how to invest in share market. Now, here are a few other important points that every stock market beginner should know:

Additional points to take care of.

1. Start small:

Do not put all your money on the market in the beginning. Start small and test what you have learned. You can start even with an amount of Rs 500 or 1000. For the beginners, it’s more important to learn than to earn. 

You can invest in large amount once you have more confidence and experience.

2. Diversify your portfolio:

It’s really important that you diversify your portfolio. Do not invest all in just one stock. Buy stocks from companies in different industries.

For example, two stocks of Apollo Tyres and JK Tyres in your portfolio won’t be called as a diversified portfolio. Although the companies are different, however, both companies belong to the same industry. If there is a recession/crisis in tyre sector, then your entire portfolio might be in RED.

A diversified portfolio can be something like Apollo tyres and Hindustan Unilever stocks in your portfolio. Here, Apollo Tyres is from Tyre industry and Hindustan Unilever is from FMCG industry. Both the stocks are from different industry in this portfolio and hence is diversified.

Also read: How to create your Stock Portfolio?

3. Invest in blue chip stocks (for beginners):

These are the stocks of those reputed companies who are in the market for a very long time, financially strong and have a good track record of consistent growth and returns in the past many years.

For example- HDFC banks (leader in the banking sector), Larsen and turbo (leader in the construction sector), TCS (leader in the software company) etc. Few other examples of blue-chip stocks are Reliance Industries, Sun Pharma, State bank of India etc.

These companies have a stable performance and are very less volatile. That’s why blue-chip stocks are considered safe to invest compared to other companies.

It’s recommendable for the beginners to start investing in blue chips stocks. As you gain knowledge and experience, you can start investing in mid-cap and small-cap companies.

Also read: What are large-cap, mid-cap and small-cap stocks?

4. Never invest in tips/advice:

This is the biggest reason why people lose money in the stock market. They do not carry enough research on the stocks and blindly follow their friends/colleague’s tips and advice.

The stock market is very dynamic and its stock price and circumstances change every second. Maybe your friend has bought that stock when it was underpriced, however now it’s trading at a higher price range. Maybe, your friend has a different exit strategy than yours. There are a number of factors involved here, which may end up with you losing the money.

Avoid investing in tips/advice and do your own study.

5. Avoid blindly following the crowd:

I know a number of people who have lost money by blindly following the crowd. One of my colleague invested in a stock just because the stock has given double return to another of my college in 3 months. He ended up losing Rs 20,000 in the market just because of his blind investing.

Related post: 6 Reasons Why Most People Lose Money in Stock Market

6. Invest in what you know and understand:

Will you buy ABC company which produces Vinyl sulphone easter and dye intermediates even though you have zero knowledge of the chemical industry?

If you will, then it’s like giving some stranger 1 lakh rupee and expecting him to return the money with interests.

 If you are lending money to someone, you ask a number of questions like what he does, what is his salary, what is his background etc.

However, while investing Rs 1 lakh in a company which people do not understand, they forget this common logic.

7. Know what to expect from the market:

Do not set unrealistic expectations for the stock market. If you want to make your money double in one month, from the stock market, then you have set your expectations wrong.

Have a logical expectation form the market.

People are happy with 4% simple interest from the savings account, but a return of 20% in a year sounds underperformance for them.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

8. Have discipline and follow your plan/strategy:

Do not get distracted if your portfolio starts performing too well or too bad in the first few months of investing. Many people increase their investment amount just in few weeks if they see their stock doing too well, and ends up losing in long run.

Similarly, many people exit the market soon and are not able to get profits when their stocks start performing.

 Have discipline and follow your strategy.

9. Invest regularly and continuously increase your investment amount:

The stock investment gives the best returns when you invest for long term. Do not invest in lump sump at just one time and wait for the next 10 years to see how much returns you got. Invest regularly whenever you get a good opportunity. 

Further, increase the investment amount as your savings increases.

10. Continue your education:

Keep learning and keep growing. The stock market is a dynamic place and changes continuously. You can only keep up with the stock market if you also continue your education.

Besides, there are a number of more lessons which you will learn with time and experience.

Ready to start your journey to become a succesful stock market investor? If yes, then here’s an amazing course for newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS.

That’s all for this post on how to invest in share market. I hope this is helpful to the readers.

If you have any doubts, feel free to comment below.

Tags: How to invest in share market, how to invest in share market for beginners, how to invest in shares for beginners, how to invest in share market online, how to start investing in shares

Hi, I am Kritesh, an NSE Certified Equity Fundamental Analyst. I’m 23-year old and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting