#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.
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.
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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.
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).
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.
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.
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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